BANKS OFFER MORATORIUM on education loan repayment during which the borrowers are not required to make EMI repayments. This period usually extends up to a year after the completion of the course or after six months of getting a job, whichever is earlier.
However, the education loan will continue to incur interest cost during the moratorium period. Borrowers should at least service the interest component during the moratorium period to reduce their interest cost. To reduce the interest costs, one should make additional payments towards the principal amount of the loan. This will reduce the outstanding balance and consequently decrease the total interest accrued over the loan tenure.
Students planning to avail education loans for higher studies should first check out whether their university has any tie-ups with a bank for such a loan. Such loan tie-ups may offer lower interest rates —up to 100 basis points than the rack rate — with quicker loan processing.
Ideally, a student should borrow only what is necessary to cover tuition fees, living expenses, and other essential costs. They should avoid borrowing excessively, as it increases the total interest paid over the loan tenure. While longer repayment tenures may result in lower monthly installments, they also lead to higher overall interest payments.