Moratorium Period in Overseas Education Loans

The process of preparing for higher education abroad has many layers. Students must juggle University applications, entrance exams, and language proficiency tests all while preparing for life in a foreign country. There is no doubt about the payoff of pursuing an education abroad, with educational institutions of global repute within the reach of students. However, it is still important to consider the financial aspects of studying abroad. Even with the availability of scholarships and work-study arrangements, the cost of a foreign education can be significant.

With the help of overseas education loans, students can cover those costs without having to rely on their savings. Many lenders give students excellent overseas education loan schemes and offers, making an international qualification accessible for students with diverse profiles. What’s great about these loans is that most of them have a moratorium period.

But what is the moratorium period in education loans to study abroad? How does it work? Let us find out together in this article.

What is Moratorium Period in Overseas Education Loans?

The moratorium period is a duration of time in which the applicant does not have to repay the loan EMI. It is also known as an EMI holiday for this reason. Usually, the moratorium period covers the length of the student’s course and 6 months or 1 year after that. Sometimes, students may have to repay partial or simple interest during the moratorium period depending on their preferred lender. Usually, students start repaying the loan EMI and interest after graduation, which helps them focus on their studies and create a financial plan over time.

This gives them further breathing space during the 6 to 12 months given after their course to search for a job without having to stress about the loan repayment. Almost all lenders offer some sort of moratorium period for both secured and unsecured education loans to study abroad. The student’s credit score also goes unimpacted during the period, which leads to a healthy financial record in the future.

Lenders generally have measures in case the applicant or borrower cannot immediately repay the loan or EMI account. One such measure is a grace period, which we will learn about in the upcoming section.

What is Moratorium Period in Overseas Education Loans v/s Grace Period?

The grace period refers to a time of 15 days within which the borrower can make up for a missed EMI payment without any charges. The grace period is often confused with the moratorium period, but the two serve completely different purposes. First of all, the grace period only applies to the borrower after they have started repaying the loan in the form of EMIs.

The second major difference is that the moratorium period has no financial penalties involved, while the grace period does. Students risk financial penalties if they do not make the EMI payment within the grace period. Having cleared up these confusing terms, let us learn about the aspects of the loan that may affect the moratorium period of the loan.

Which Factors Affect the Moratorium Period?

The moratorium period is not the same for every single loan offer. Each lender has a different policy for the moratorium period based on a variety of factors that may affect the applicant’s repayment plan. Those factors are detailed briefly below.

1. Type of Loan and Lender - Some lenders may offer a moratorium period of 1 year past the course duration for both secured and unsecured education loans. On the other hand, some may offer a moratorium period of 6 months after the course ends. It is important to check each lender’s terms thoroughly.
2. Duration of the Course - The moratorium period applies for the entire duration of the course as well as the job search period, which extends for up to a year after the student graduates. However, the job search period may be lower for certain courses.
3. Maximum Loan Amount - If the maximum loan amount borrowed by the student is a large sum, the lender may extend the moratorium period and give a more lenient repayment schedule. The interest required during the moratorium period (if any) may also change.
4. Employment Status of the Borrower - It is natural to wonder what happens if the moratorium period for an overseas education loan ends before one can secure a job. In such cases, many lenders can extend the moratorium period until one has secured employment. The length of the extension is based on the student’s circumstances.

As we can see, the moratorium period can affect the student’s financial decisions quite a bit. Students should use this time to set down a repayment plan for their education loan. Let us discuss some strategies for ensuring a smooth loan repayment plan in the upcoming section.

Which Strategies to Use for Overseas Education Loan Repayment?

After one graduates and starts working, one must balance loan repayment alongside day-to-day costs and other investments. This requires a thorough financial roadmap that accounts for the student’s journey as a professional. The following tips can help with the creation of this plan:

• Understand the terms of the overseas education loan carefully, including the interest rate details, repayment period, and any additional details.
• Create a budget with the 50/30/20 rule, dividing income into necessities, loan repayments, and savings. It is also important to create an emergency fund in case of emergencies.
• Automate the overseas education loan repayments to pay the EMI on time.
• Pay a little over the EMI or save up money to pay in a lump sum to reduce the overall loan amount.
• Try to refinance the overseas education loan. After making some payments, lenders may agree to take on the rest of the loan at a lower interest rate. This will also help students save more money in the long run.

Lastly, students can also seek the advice of experiences professionals working as overseas education loan consultants. Whether it be advice about the lowest interest rate on education loans to study abroad or about unexpected financial roadblocks, these experts can give personalized guidance to help students successfully repay their respective loans.