What is Moratorium Period in Education Loan?: Fed up with expenses on education, both students and parents are left with only one safe option i.e education loan for higher studies. But for students who want to study quality education at top universities, then the cost of education may rise even more. This is the main reason for students to take education loans to study abroad. As the loan has to be repaid by the student, banks provide a grading period to the students during that period you don’t have to repay the interest to the bank. This period is called the moratorium period in education loans.
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What is Moratorium Period in Education Loan?
A moratorium period in an education loan is defined as the time when the borrower doesn’t need to repay the loan. Usually, the repayment of the loan begins soon after the borrower takes it, but in the case of an education loan moratorium period, the bank allows students to start to repay the loan amount once they finish their course and begin earning.
Usually, the moratorium period is the selected course duration plus 6 months or 1 year where the student has to get a job to sort their finances and prepare for the loan repayment process. Here banks charge interest for the moratorium period also, which is added to the principal. Students who want to start their repayment in the form of EMIs can start paying during the moratorium period as this help you to minimize the interest burden.
Why is Education Loan Moratorium Period Important in India?
In the moratorium period, the borrowers who don’t repay during this period must not be treated as loan defaulters. In this period, the simple interest is calculated for the sum you have taken as a loan, excluding margin money.
Most Indians choose to take education loans for financial assistance. To provide these students with a duration to study peacefully and search for a job, it is important to give them some time called a moratorium period on education loans.
Differences Between Moratorium Period and Grace Period
People get confused between the grace period and the moratorium period. The grace period is the duration after payment is outstanding, where a payment can be done without any penalty charged. Or simply, a borrower is expected to pay over the grace period or face a monetary penalty. In a moratorium period, a borrower doesn’t need to pay over the period.
The main differences between the moratorium period and grace period are listed here:
- The main difference between them is that the moratorium period has a longer duration when compared to the grace period. This, there will be interest charged during the moratorium period.
- The moratorium period has no guarantee.
- The length of the moratorium period can range from weeks to months.
- If a lender provides a grace period to credit card holders, it applies to all customers. In case of a moratorium period, borrowers have to request the same, and the lenders have to approve the request.
Benefits of Moratorium Period in Education Loan
The below listed are some of the advantages of the education loan moratorium period.
- Here students can focus on their studies without worrying about education loan payments.
- It lowers students’ financial stress and gives them sufficient time to plan their finances better.
- During this period, students can save funds and use them for other expenses.
- In this moratorium period, your loan is not considered a default. So, your credit score won’t get affected.
- Government banks won’t charge penalties for these moratoriums.
Disadvantages of Moratorium Period in Education Loan
These are the few drawbacks of the moratorium period in education loans.
- Accumulation of Interest: Interest repayment is not possible during this period. So, students have to pay for this at the later stages.
- Increase in loan tenure: As there is no chance for repayment during the grace period, the loan tenure increases.
- Compound interest during this period: Some lenders charge simple interest during the moratorium period for education loans and some institutions charge compound interest. Thus the total loan amount increases.
FAQs on Education Loan Moratorium Period
- What is the moratorium on education loans?
The moratorium period is the time when the bank allows students to sort their finances and prepare for loan repayment accordingly.
- What happens in the moratorium period?
In the moratorium period, the lender allows you to stop making repayments for a specific period of time. And simple interest is calculated on the loan amount.
- Is interest paid during the moratorium period?
Yes, you can pay interest during the moratorium period if you want.
- Can we repay the education loan during the moratorium period?
No, you can’t pay an education loan during the moratorium period.
Key Takeaways
Got the detailed answer for What is Moratorium Period in Education Loan? Also, know that students can’t make repayments during the moratorium period to the government banks. Still, if you have doubts about the moratorium period, you can contact us below.
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