How education loan EMI is calculated
An EMI (equated monthly instalment) is the fixed amount you pay every month once repayment starts. Each EMI contains some interest and some principal. Early EMIs are mostly interest; as the balance falls, more of each payment goes towards the principal. Lenders use the standard reducing-balance formula:
Formula
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- P — the principal outstanding when repayment begins (including any interest added during the moratorium).
- r — the monthly interest rate, i.e. annual rate ÷ 12 ÷ 100. At 10% a year, r = 0.00833.
- n — the number of monthly instalments, i.e. tenure in years × 12.
Worked example
A ₹40,00,000 loan at 10% for 10 years with no moratorium: r = 0.1 ÷ 12 = 0.00833, n = 120. The EMI is ₹52,860, and you repay ₹63,43,235 in total — ₹23,43,235 of it interest.
Education loans differ from home or car loans in one important way: you do not start paying EMIs immediately. That is where the moratorium comes in, and it changes the numbers considerably.
What is the moratorium period?
The moratorium (or repayment holiday) is the period during which you do not have to pay EMIs. For study-abroad loans it normally covers your course duration plus a grace period — typically 6 to 12 months after the course ends, so you have time to find a job. SBI's Global Ed-Vantage scheme, for example, gives 6 months after course completion; other lenders differ, so check your sanction letter.
A moratorium is not interest-free. Interest is charged on the amount disbursed throughout the course and grace period. Most Indian lenders charge simple interest during this time, and you can handle it in one of two ways:
- Let it accrue. The interest builds up and is added to your principal when the moratorium ends (SBI, for instance, states that accrued interest is added to the principal and the EMI is fixed on the total). Your EMIs are then calculated on a bigger amount.
- Pay it as you go. You (or your parents) pay the simple interest every month during the course. The principal stays at the original amount, so EMIs are lower. Some banks reward this with an interest concession — SBI has offered 1% on some schemes — so ask your lender.
Interest during moratorium
Moratorium interest = P × Annual rate × Moratorium months ÷ 1200
Here is the same ₹40,00,000 loan at 10% repaid over 10 years, with a 30-month moratorium (a two-year Master's plus six months):
| Interest added to loan | Interest paid during study | |
|---|---|---|
| Interest during moratorium | ₹10,00,000 | ₹33,333 / month |
| Principal when EMIs start | ₹50,00,000 | ₹40,00,000 |
| Monthly EMI | ₹66,075 | ₹52,860 |
| Total interest | ₹39,29,044 | ₹33,43,235 |
| Total amount payable | ₹79,29,044 | ₹73,43,235 |
Paying interest during the course saves ₹5,85,809 over the life of the loan and cuts the EMI by ₹13,215 a month, because you never pay interest on interest. If your family can afford even part of the monthly interest, it is usually worth it.
This calculator is deliberately conservative
It assumes the full loan is disbursed on day one. In practice lenders release money semester by semester, so interest during the first year is charged on a smaller balance and your real moratorium interest will usually be lower. Rates on most education loans are also floating, so your EMI can change when the lender's benchmark rate moves.
How tenure changes your EMI and total interest
A longer tenure lowers the EMI but increases the total interest. These figures use the ₹40,00,000 loan at 10% with interest accrued during a 30-month moratorium.
| Repayment tenure | Monthly EMI | Total interest | Total payable |
|---|---|---|---|
| 5 years | ₹1,06,235 | ₹23,74,113 | ₹63,74,113 |
| 7 years | ₹83,006 | ₹29,72,497 | ₹69,72,497 |
| 10 years | ₹66,075 | ₹39,29,044 | ₹79,29,044 |
| 12 years | ₹59,754 | ₹46,04,563 | ₹86,04,563 |
| 15 years | ₹53,730 | ₹56,71,446 | ₹96,71,446 |
A sensible approach is to choose a longer tenure for safety and prepay whenever you can. That keeps the mandatory EMI affordable in your first job, while prepayments bring the real cost down.
Education loan interest rates in India (2026)
Rates depend on the lender, whether you offer collateral, your university and course, and your co-applicant's income and credit score. As a rough guide:
| Lender type | Typical rate (p.a.) | Notes |
|---|---|---|
| Public-sector banks (SBI, Bank of Baroda, etc.) | About 8.5%–11% | Lowest rates, usually with collateral; slower processing; linked to the bank's external benchmark (repo) rate |
| Private banks | About 9.5%–13% | Faster processing; collateral often required for large amounts |
| NBFCs (e.g. HDFC Credila, Avanse, Auxilo) | About 10.5%–14%+ | Large unsecured loans possible; may cover more of the cost; higher processing fees |
For reference, SBI's published rate card (June 2026) listed 9.40% for its Global Ed-Vantage study-abroad loan with collateral and 8.90% for select institutions with collateral, with a 0.50% concession for girl students. Public banks commonly offer such concessions, so ask about them.
Collateral vs non-collateral education loans
| Secured (with collateral) | Unsecured (no collateral) | |
|---|---|---|
| Security | Property, FD or other assets pledged | Co-applicant income, your admit and profile |
| Interest rate | Lower | Higher, often by 1–3 percentage points |
| Loan amount | Can be very large (public banks go up to crores) | Depends on university, course and co-applicant |
| Processing time | Longer — property valuation and legal checks | Faster |
| Typical lenders | Public and private banks | NBFCs, private banks; public banks for select universities |
Public-sector banks usually lend small amounts (up to ₹7.5 lakh at SBI, for example) without collateral, and some extend collateral-free limits for students admitted to selected top universities. Beyond that they generally need security. NBFCs are more willing to lend large unsecured amounts, but you pay for that convenience through a higher rate.
Tax benefit: Section 80E (now Section 129)
The interest you pay on an education loan can be deducted from your taxable income. This was Section 80E of the Income-tax Act, 1961; under the new Income-tax Act, 2025 (in force from 1 April 2026) the same deduction appears as Section 129, with the conditions unchanged.
- No upper limit — the entire interest paid in the year is deductible.
- Interest only — principal repayment does not qualify.
- Up to 8 years — starting from the year you begin paying interest, or until the interest is fully paid, whichever is earlier.
- Who can claim — an individual who took the loan for the higher education of themselves, their spouse, their children, or a student for whom they are the legal guardian.
- Lender — the loan must be from a bank, financial institution or approved charitable institution, not from relatives or an employer.
- India or abroad — loans for studying overseas qualify.
- Old tax regime only — the deduction is not available if you choose the new (default) tax regime.
Example
If you pay ₹3,00,000 in interest in a year and fall in the 30% slab under the old regime, the deduction can save you up to ₹90,000 plus cess. If a parent is the borrower and pays the interest while you study, the parent claims the deduction, and the 8-year window starts from that first year of interest payments.
Tax rules change; confirm your eligibility with a tax adviser or the Income Tax Department before filing.
How to reduce the interest you pay
- Borrow less. Every rupee of scholarship, tuition waiver or assistantship is a rupee you do not pay interest on, so apply for funding before you finalise the loan amount.
- Pay the interest during the moratorium, fully or partly, so it is not added to your principal.
- Prepay early. RBI rules bar prepayment penalties on floating-rate loans to individuals for non-business purposes, so extra payments reduce your balance at no cost. Check your sanction letter if your loan has a fixed rate.
- Offer collateral if you can. A secured loan from a public bank is often the cheapest option.
- Ask about concessions — for girl students, for servicing interest during study, or for admits to top-ranked universities.
- Compare the full cost, not just the rate: processing fees, insurance bundled with the loan and margin money all add up.
- Refinance later. Once you have a steady income, another lender may offer a lower rate on the outstanding balance.
- Plan for currency movement. Your loan is in rupees but your fees are in dollars, pounds or euros. A weaker rupee raises the amount you need to borrow.
Before you apply
Lenders look at your admit letter, the university's ranking, your academic record and test scores, and your co-applicant's finances. If you are still shortlisting, our CGPA to GPA calculator and GRE score calculator help you check whether your profile fits a programme before you commit to the fees.