Education loans: What is a moratorium period and what makes is so useful?

With rising competition, it’s easier and cheaper to get an education loan today than it was a few years back. But for a university or country that is not popular among students, a lender may seek additional security. When taking a loan, it is important to look at various factors, and not just the interest rate.

• To arrive at your loan requirement, consider charges like hostel, university mess, other incidental expenses, besides tuition fees
• Lenders may not lend for admission in less-popular universities or ask for extra collateral as the non-performing assets in the education loan segment have been growing in recent times
• The interest on education loan is deductible under Section 80E of the Income Tax Act. A borrower can avail this for up to eight years
• Assess whether you would be able to repay the loan. Consider the average salary of students who recently passed out from the university you have chosen. Your equated monthly instalment (EMI) should be 30-40 per cent of the median salary
• Taking a longer-tenure loan can make EMIs affordable. Later, you can prepay the loan
• A lowest interest rate may not necessarily be the best. Choose a lender based on the moratorium period, margin requirement and tenure offered.