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What is the moratorium period (or) repayment holiday in education loan?
A moratorium period in education loan is defined as the time where the borrower is not required to repay the loan.
Usually, the repayment for a loan starts soon after a borrower takes it, but in the student loan moratorium period, lenders allow students to start their repayment once they finish their course and start earning.
The moratorium period is usually the course duration plus 6 months or 1 year where the lender allows a student to take adequate time to sort out their finances and prepare for loan repayment accordingly.
Banks generally charge interest for the moratorium period, which is later added to the principal.
As the interest on the loan generally accrues over the moratorium period, a lender usually calculates interest on the loan on a simple interest basis.
So, students who are willing to start their monthly EMIs (equated monthly installment) can start paying during the moratorium period as this would ultimately help them relieve the interest burden.
Deductions on your Education Loan
Once you avail of an education loan, the interest paid (which is a component of your EMI) on the education loan is allowed as a deduction under Section 80E of the Income Tax Act, 1961.
This deduction is available for a maximum of 8 years or till the interest is repaid, whichever is earlier.
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