Pursuing higher education is a major milestone, and for many students, it comes with the financial commitment of an education loan. Whether it’s a degree in engineering, management or MBBS many students turn to education loans to bridge the financial gap. While the loan helps fund their studies, repaying it through EMIs (Equated Monthly Instalments) is an important commitment that both students and their families need to understand thoroughly.
This beginner-friendly guide will explain the basics of EMI in education loans, what to expect during repayment, and tips to handle them smartly.
What is EMI in Education Loans?
EMI, or Equated Monthly Instalment, is the fixed amount you pay every month to repay your education loan. This amount includes both the money you borrowed (the principal) and the extra charge by the bank (interest).
The EMI structure generally depends on:
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Loan amount
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Interest rate
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Repayment tenure
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Type of interest (fixed or floating)
The payback period for Education loans in India does not necessarily begin right away. Most banks and NBFCs offer a moratorium period which is the time during which students are not required to make full EMI payments, usually covering the course duration of 6 to 12 months post-study.
How EMI Works: A Simple Illustration
Suppose a student takes out a ₹10 lakh education loan with a seven-year term and 10% annual interest charges. The EMI calculation looks like this, assuming repayment begins after a 4-year moratorium (3-year course + 1-year grace)
|
Loan Amount (₹) |
Interest Rate |
Loan Tenure (Years) |
EMI (Approx.) |
|
10,00,000 |
10% |
7 |
₹14,508 |
What Happens During the Moratorium Period?
During this time, students typically have three options:
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Full Moratorium – No payment is made during this time. The interest keeps adding up and gets added to the loan amount. This is called capitalization, which means the unpaid interest becomes part of the total loan you have to repay later.
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Partial Interest Payment – Pay only simple interest.
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Full Interest Payment – Pay complete interest, which keeps the overall burden lower after the moratorium.
Many financial advisors recommend partial or full interest payments if feasible, especially in cases where the education loan can run for extended periods due to internships and specializations.
How is EMI Calculated?
The EMI for an education loan is calculated using this formula:
EMI = [P × R × (1+R)^N] / [(1+R)^N – 1]
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P = Principal loan amount
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R = Monthly interest rate (annual interest rate ÷ 12 ÷ 100)
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N = Loan tenure in months
Factors That Affect EMI
It’s important to know what factors will influence your EMI, so you may plan your finances effectively.
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Loan Amount: Higher the principal, higher the EMI.
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Interest Rate: If your loan follows a floating interest rate, it may change over time, which can affect your EMI.
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Tenure: A longer loan tenure means lower EMI payments, but more interest will be paid in total.
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Repayment Plan: Your lender will have different repayment plans available, such as bullet payments and step-up EMIs.
You might want to have a look at RBI guidelines for education loans.
What to Expect When Repaying
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EMI Start Date: Begins after the moratorium.
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Auto-Debit Option: Most banks encourage automated EMI payments from a linked bank account.
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Penalty on Default: Missing an EMI may result in penalty charges and negative credit score.
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Prepayment Options: You can pay off the loan early, partially or fully, often without penalty (check lender terms).
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Income Tax Benefits: Under Section 80E of the Income Tax Act, you can claim deductions on interest paid for 8 years.
Simple Tips to Manage Your EMI Wisely
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Make a Budget: Keep track of your spending and plan your monthly budget so you’re ready when EMI payments begin.
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Keep Emergency Savings: Try to save enough to cover at least 2–3 months of EMIs in case something unexpected happens.
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Use Extra Money Smartly: If you get a bonus or gift money, use it to pay off a part of your loan early.
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Pay EMIs on Time: Paying your EMIs regularly helps build a good credit score, which can make it easier to get loans in the future.
An education loan is an investment in your future, and understanding how EMIs work is essential for planning a stress-free repayment journey. Whether you’re an aspiring engineer or an MBBS student looking for an Education Loan for MBBS, smart planning and disciplined financial behavior will ensure that your education loan does not become a burden.
