Education Loan

Moratorium Period in Education Loan - Meaning, Examples & Working

Moratorium Period in Education Loan - Meaning, Examples & Working

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Read GyanDhan’s guide on what is moratorium in loan. Learn the meaning, and importance of what is moratorium in loans with an example.

Education loan
GyanDhan
Rahul Srivastava
Updated on:  01 Dec 2023  | Reviewed By: 
Aman 
| 23.1K | 6  min read

The moratorium period is a term closely associated with education loans about which a student borrower must learn in advance. A financial term, the moratorium period in education loans is the time allowed by the lender in which the students are not expected to repay the principal amount of the education loan. Since the students must find a job after studying for loan repayment, the moratorium period includes the course duration plus 6 to 12 months after completing the course.

A student must be aware of the critical aspects of the education loan, including the moratorium period. Let's see the benefits of the moratorium period in education loans, how the moratorium conditions vary with different lenders, and what the students should essentially learn about the moratorium period.

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What is Moratorium in Loans?

The moratorium period is when a borrower is exempted from repaying the loan. ‘Moratorium’ means temporary prohibition of an activity; hence, the moratorium period in education loans refers to the interval of time in which the borrower need not repay the loan. During this period, the banks do not demand any repayments from the students. The Reserve Bank of India has made it mandatory for all government banks to offer a moratorium period on education loans.

 

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Importance of Moratorium Period in Education Loans

The moratorium, as a banking rule, follows that those who do not repay during the moratorium period must not be treated as loan defaulters. In the moratorium period, simple interest is calculated for the amount disbursed, excluding margin money.

A significant number of Indian students seek abroad destinations for higher studies, and many of them rely on education loans for financial assistance. To provide these students a duration to study peacefully and search for a job, it is important to give a moratorium period on education loans.

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Understanding the Moratorium Period with an Example

Understanding the concept and purpose of the moratorium period would be easy with an example. In this example, our objective is to learn the general moratorium period.

For instance, - Raj a study abroad applicant took a secured education loan of INR 50 Lakh for his Master's course in the USA in January 2024. Now Raj does not need to start repaying his loan during his course, instead, his repayment will start 12 months after his course is completed. Which means his repayment will start in 2027.

The lender understands that the student borrowers cannot repay the loan immediately after their studies. The students are therefore given a moratorium period to find a job and start their repayments after the moratorium period.


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What is the Difference Between the Moratorium Period and the Grace Period?

People commonly confuse a moratorium period with a grace period. It is vital to know that a grace period is a set duration after payment is *outstanding payment, where a payment can be made without any penalty charged.
 

On the other hand, in a moratorium period, a borrower doesn’t have to pay during the course period. Also, a moratorium period length can vary from weeks to months, whereas a grace period length is generally 15 days. 

*Outstanding payment refers to the unpaid balance amount of the current due. 

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What are the Advantages of a Moratorium Period in an Education Loan?

Below are listed some of the top benefits of a moratorium period in education loans - 

  • list items A moratorium period reduces the financial burden on the student during the study.
  • list items Allows the student for better repayment planning.
  • list items The student’s credit score remains unaffected during this non-repayment period.
  • list items The parents, who are the co-borrowers in most education loans, do not have to make any repayment during the moratorium period.
  • list items Some banks offer an extension in the moratorium period.  

 

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What is the Moratorium Period offered by Different Lenders in India?

The moratorium period differs for different types of lenders. Sometimes it can also vary within the same type of lender. Moratorium periods of different lenders are as follows -

  • list items Public Sector Banks: Usually the moratorium period in government banks is a course period + of 6 months. Students do not have to make any type of payment during this period.
  • list items Private Sector Banks: The moratorium period in private banks is usually a course period + 12 months. However, the borrower has to pay a simple interest amount during the moratorium period. Installments, including some part of the principal amount, start after the moratorium period.  
  • list items NBFCs: In general, the moratorium period in NBFCs is course period + 12 months. However, the borrower has to pay a simple interest amount or some partial interest (set and communicated during the loan process) during this moratorium period. Installments including some part of the principal amount start the moratorium period.

Several study-abroad aspirants often tend to miss crucial topics such as what is moratorium in loans, margin money, processing fees, and many more. It is important for borrowers to be familiar with such concepts to make an informed decision. We at GyanDhan understand that taking an education loan is a huge financial decision therefore, it is important to cover all crucial factors before choosing a lender. Hence, we at GyanDhan offer completely free expert education assistance for students. Our expert education loan counselors will evaluate your profile and select the best education loan lender for you and if needed we will also customize an education loan for you. And the best part is we do not rely on one lender we initiate your loan process with 3-4 lenders in a single go. We make sure that you get the best education loan deal. Not only this, we provide end-to-end assistance, from evaluating your profile to the actual disbursement we are always by your side. Wondering how to start? Check your loan eligibility today to get started. 

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Frequently Asked Question

Do public banks charge fines on early repayment during the moratorium period?

There are no fines for early repayment of education loans. Starting the repayment as early as possible would help the students lessen their financial burden. However, it is important to note that the moratorium period is not interest-free. Therefore, the earlier a student starts the repayment of the loan, the lesser will be the interest charged on the rest of the education loan amount.

What is moratorium in loan?

The moratorium period is to give a necessary gap to borrowers before repayment starts. The moratorium is meant to equip the student financially to begin their repayment. In the moratorium period, the student can find a job or any other financial means to repay the education loan.

How long is a moratorium period?

The moratorium period includes the course’s length plus 6-12 months after course completion. Although the moratorium period varies for different lenders, the moratorium period is 6-12 months in typical cases.

When does a moratorium period begin?

The moratorium period begins when the student commences a course. The moratorium period in education loans is generally course duration plus 6 months or 1 year for different lenders.

Can the moratorium period be extended?

Depending upon the student’s situation and the lender’s decisions, the moratorium period can be extended in exceptional cases. The key idea behind the moratorium itself is to assist the borrower in difficulty, and banks may offer a grace period if there’s a valid reason behind the plea.

Is moratorium interest-free?

Not always. There will be simple interest for the moratorium period. In education loans from public banks, the student need not repay during the moratorium period. There will be interest repayments in the moratorium period for unsecured education loans from private banks and NBFCs.

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