Education Loan Calculator

An education loan is different from most loans because repayment does not start immediately. The student studies for years with no EMI to pay, but interest is running. That period, plus a grace period afterwards, is the moratorium. What you borrow, what interest builds up during it and how you treat that interest decide how big the loan is on the day repayment begins. This page follows the loan from the first day to the last instalment.

The moratorium

Enter the course length in years and any extra months before the first EMI, commonly six months to a year after the course. The moratorium is the sum, in months. During it, interest is charged as simple interest on the amount: amount × rate × months ÷ 1,200. You can choose to pay it every month, which keeps the balance at the original amount, or to let it be added to the loan when repayment starts, which raises the balance.

A worked example

The default is a 20,00,000 loan at 10.5% for a 2-year course with 6 extra months, so the moratorium is 30 months. The interest of 5,25,000 is added to the loan, which is then 25,25,000 when repayment starts. Over a 10-year repayment the EMI is 34,071.09, interest during repayment is 15,63,530, the total interest over the whole loan is 20,88,530 and the total you repay is 40,88,530. In the second sample, a 15,00,000 loan, a 4-year course with 12 extra months and interest paid as you go (7,87,500 during the 5-year moratorium), repayment starts from 15,00,000 and the EMI over 7 years is 25,291.01.

Section 80E

In India, the interest paid on a loan taken for higher education is deductible from taxable income under section 80E, for up to eight years from the year repayment begins or until the loan is repaid, whichever is earlier, with no upper limit on the amount. The page adds the interest of the first eight repayment years, 14,80,494 in the default case, and multiplies it by your tax rate, so at 30 percent the saving is about 4,44,148. The deduction is available under the old tax regime only, so compare regimes before counting on it.

The yearly table

The table lists the interest in each year of repayment and marks the first eight as counting for the deduction. Interest is highest in the first year, 2,58,002 in the default example, and falls as the balance falls, to 22,334 in the tenth year. The pattern is useful for planning: most of the early EMIs are interest, which is also why prepayment early in the repayment period saves so much.

Choosing how to handle the moratorium

If you or your family can afford it, paying the interest during the course keeps the loan smaller and avoids interest on interest. If not, letting it accumulate is common, but the cost is real: in the default case the added 5,25,000 is the difference between starting at 20 and at 25.25 lakh. The page uses simple interest during the moratorium, so check in your agreement whether your lender charges simple or compound interest in that period.

Limits

The loan is assumed to be paid out in full on the first day. In practice a lender releases it in instalments for fees, and interest runs only on what has been paid, so the real moratorium interest is a little lower. Subsidies on interest for some students, fees and insurance are not included. Interest rates may be floating, and the page treats them as fixed.

Related tools

• Education Savings Calculator plans the savings that reduce the amount you need to borrow.
• Income Tax Calculator shows the old and new regime so you can see whether 80E is worth claiming.
• Loan Calculator gives the schedule for the repayment phase of any loan.
• DTI Calculator shows how the new EMI affects your borrowing capacity.