The education loan moratorium is not a payment holiday

An education loan comes with a moratorium — the course period plus a grace spell afterwards, during which no instalment is due. It is described as a payment holiday and treated as one, and that is the expensive misunderstanding.

Interest does not pause. It accrues throughout, and at the end of the moratorium it is usually added to the principal. You then pay interest on that interest for the rest of the loan.

What it costs to do nothing

A ₹20,00,000 loan at 9.5%, a four-year course, ten years to repay afterwards.

Option one, the default: pay nothing until the course ends.

Balance when repayment starts	₹29,20,196
EMI from then on	₹37,787
Total interest over the life of the loan	₹25,34,396

The loan grew by ₹9,20,196 before a single instalment was due. Nobody borrowed that; it is four years of interest compounding on itself, and it is now principal.

What it costs to service the interest

Option two: pay only the interest each month while studying. Nothing toward the principal — just enough to stop it compounding.

Monthly during the course	₹15,833
Paid across the four years	₹7,60,000
EMI from then on	₹25,880
Total interest over the life of the loan	₹18,65,541

The comparison

	Pay nothing	Service the interest
Total interest	₹25,34,396	₹18,65,541
EMI after the course	₹37,787	₹25,880

Servicing the interest saves ₹6,68,854 and brings the eventual instalment down by ₹11,907 a month — which matters enormously to a graduate in their first job, because that instalment arrives whether or not the salary did.

The ₹7,60,000 paid during the course is not free, obviously. But it buys a reduction of ₹6.69 lakh in interest and a far gentler start to repayment.

Who can actually do this

A student usually cannot. A parent or co-applicant often can, and this is the thing worth discussing before the money is drawn rather than after graduation.

Even partial servicing helps. Paying half the monthly interest halves the compounding, and most lenders accept voluntary payments during the moratorium without any penalty — it is simply not offered unless you ask.

Other things worth asking before you sign

Is the interest simple or compounded during the moratorium? Some schemes charge simple interest on the drawn amount through the study period, which is materially cheaper than monthly compounding. Ask explicitly, and get the answer in writing.

Is there a concession for servicing? Several lenders reduce the rate slightly for borrowers who pay interest during the course. It is not always volunteered.

How is the money drawn? Education loans usually disburse per semester, not in one lump. Interest accrues only on what has actually been drawn, so the first year's interest is much smaller than the last — which makes early servicing cheap and worth starting straight away.

What is the grace period after the course? Six months to a year is typical, and it is part of the moratorium. Interest accrues through it too.

The point

A moratorium is a deferral, not a discount. Treating it as free is what turns a ₹20 lakh loan into a ₹29 lakh one before repayment begins.

Model both paths on the education loan calculator — run the original amount for the repayment term, then run the capitalised balance, and the gap is the cost of the holiday.