Lesson 2 of 3 · 5 min
The moratorium is not a pause on interest
No EMI is demanded during the course plus one year, but the interest meter starts at the first disbursement and does not pause for a single day.
The moratorium — the course period plus one year under the model scheme — means no EMIs are demanded yet. It does not mean the meter is off. Interest starts on the day of the first disbursement and quietly accumulates all through college.
Put these in order
Put the life of an education loan in the order it actually happens.
- EMIs begin — on the principal plus every rupee of unpaid moratorium interest
- Course ends and the one-year moratorium runs
- Interest starts from the very first disbursement
- Fees go to the college in stages, semester by semester
- Bank sanctions the loan before the course begins
Your turn
₹5,00,000 has been disbursed. At 10% a year simple interest, unpaid for 3 years, how much interest has piled up by the end of the moratorium?
Work it out yourself
Enter your own course cost, rate and moratorium, and compare two worlds: interest paid as it arises during the course, versus interest left to pile onto the loan.
Education Loan Calculator (with moratorium interest)Myth
“During the moratorium the loan is on hold, so it costs nothing.”
False
The moratorium defers the EMI, not the interest. Interest accrues from the first disbursement, and whatever goes unpaid is added to the amount the EMIs are later computed on — paying interest on interest.
Nobody asked me for money for three years
KabirTara
Kabirasking
Nobody asked me for a single rupee the whole time I was studying. So the loan was asleep, wasn't it?
Taraexplaining
The EMI was asleep. The interest was awake the entire time, from the day the bank sent the first payment to your college.
Kabirasking
Then where did that interest go? I never paid any of it.
Taraexplaining
It was added to what you owe. When the EMIs are finally worked out, they are worked out on the larger amount — so you end up paying interest on the interest.
Kabirasking
That word was doing a lot of quiet work, then.
Taraexplaining
It was. It says pause, and everyone hears free. Paying the interest as it arises during the course is allowed, and it stops the pile-up — some banks even shave the rate a little for doing it. Either way, the meter never stopped.
Check yourself
1 / 3
Kabir asks
During the moratorium, what is actually paused?
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