Education loans work differently from most other loans in one important way: you're typically not expected to start repaying immediately, which can create confusion about what's actually happening to the loan during that gap.
Understanding the moratorium period
Most education loans include a moratorium — a period covering your course duration plus usually 6-12 months afterward (to allow time to find employment) — during which you're not required to pay EMIs. What varies by lender is what happens to interest during this time: some lenders let it accrue and add to your principal (capitalizing it, which increases your total repayment), while others let you optionally pay just the interest during this period to avoid that compounding effect.
If you can afford it, paying at least the interest during the moratorium is usually worth doing — it prevents your loan principal from growing before you've even started your career.
The tax benefit under Section 80E
The entire interest paid on an education loan is deductible from taxable income, with no upper limit, for up to 8 years starting from when repayment begins. This is unusually generous compared to most deductions, which cap the amount — worth factoring into your overall tax planning once repayment starts.
Why a co-applicant is usually required
Since students typically have no income yet, banks require a parent or guardian as co-applicant for most education loans, especially above ₹4 lakh. This means the loan appears on the co-applicant's credit history too, so timely payments matter for both parties involved.
A practical tip for the moratorium period
Even a small monthly interest payment during your studies — funded through a part-time job or family support — can meaningfully reduce your total repayment burden once you graduate and EMIs begin in earnest.