A student takes a ₹10 lakh loan for a two-year master’s degree. The bank says nothing is payable until six months after the course. Two and a half years later the first EMI arrives — on a loan of ₹12.5 lakh. Nobody borrowed the extra ₹2.5 lakh. It is interest that ran quietly through the course and the grace period, and was added to the loan on the day repayment began.
A plant in a pot left in the corner keeps growing whether or not anyone looks at it. Come back in a year and it has filled the pot. Trim it a little every week and it stays the size you planted.
Interest on an education loan grows from the first disbursement whether or not repayment has started. Leave it alone through the course and it is added to the loan; pay it each month and the loan stays the size you borrowed.
How an education loan is built
| Feature | What it means | What to check |
|---|---|---|
| Disbursement | Money is paid to the institution term by term, not all at once | Interest starts on each amount from the day it is paid out |
| Moratorium | A period — usually the course plus six months to a year — before EMIs begin | Whether interest is simple or compounding during it, and whether paying it earns a rate concession |
| Margin money | The share of costs the family pays, the loan covering the rest | The percentage, which often differs for study in India and abroad |
| Co-borrower and collateral | Usually a parent co-borrows; larger loans often need property or deposits as security | Limits for loans without collateral vary by lender |
| Interest rate | Often linked to a benchmark, so it can change | Floating or fixed, and the reset terms |
Enter ₹12,50,000 and then ₹10,00,000 at 10% over 7 years to see the two EMIs from the example — and try a prepayment from your first salary.
Section 80E: the deduction, and its limits
- Interest only, all of it. The whole interest paid in a year is deductible, with no upper limit; the principal is not.
- Eight years. The deduction runs for up to eight years from the year you start repaying — and paying interest counts as repaying — or until the interest is fully paid, whichever comes first. So interest paid during the course is deductible too, and it starts the eight-year clock.
- Who can claim. The person who took the loan, for higher education of themselves, a spouse, their children, or a student they are legal guardian of. A parent who is the borrower on a child’s loan can claim it.
- Which lenders. Banks and approved financial or charitable institutions — not a loan from a relative or employer.
- Old regime only. The new tax regime, now the default, does not allow the 80E deduction. Whether it is worth choosing the old regime depends on all your deductions together.
During a two-year course, a student’s family pays nothing on a ₹6 lakh education loan at 10%. When EMIs begin straight after the course, the loan is most likely about:
Education loan mein EMI course khatam hone ke baad shuru hoti, par byaaj pehle din se chalta hai. ₹10 lakh, 10% byaaj, 2 saal course + 6 mahine = ₹2.5 lakh byaaj — na bharo toh loan ₹12.5 lakh ban jaata, EMI ₹20,751. Course ke dauraan ₹8,333 mahina byaaj bhar do toh loan ₹10 lakh hi rehta, EMI ₹16,601 — lagbhag ₹99,000 ki bachat. Section 80E: poora byaaj 8 saal tak deduct — par sirf old tax regime mein. Bank compare karo: rate, fee, margin money, collateral, aur moratorium mein byaaj ka niyam.
- Interest runs from each disbursement; the moratorium only delays the first EMI.
- Unpaid interest is usually added to the loan, so you pay interest on interest for years.
- Paying interest during the course keeps the loan at its original size — about ₹99,000 cheaper on a ₹10 lakh loan in the example.
- Section 80E deducts all the interest for up to eight years — but only under the old tax regime.
- Compare the rate and resets, fees, margin money, collateral and moratorium terms, and look for subsidy schemes.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- does interest accrue during the education loan moratorium
- Yes. The moratorium only delays when you must start repaying — usually until the course ends plus six months to a year. Interest is charged from the day each amount is disbursed. If it is not paid during the course, it is usually added to the loan when repayment starts, so you then pay interest on that interest for the rest of the loan.
- how much tax can I save on education loan interest
- Under Section 80E you can deduct the entire interest paid in a year on an education loan for yourself, your spouse, your children or a student you are the legal guardian of, with no upper limit, for up to eight years from the year repayment starts. Only interest qualifies, not principal, and the loan must be from a bank or approved institution. The deduction is available under the old tax regime, not the new default regime — check which one you file under.
- should I pay interest during the education loan moratorium
- If the family can afford it, usually yes. Paying the interest each month during the course keeps the loan at its original size, so the later EMI is lower and the total cost falls. On a ₹10 lakh loan at 10% with a two-and-a-half-year moratorium, paying interest during the course saves about ₹99,000 overall compared with letting it pile up. Some lenders also offer a small rate concession for doing so.