Education Loan Repayment After Your First Job: A Fresher Guide

Last updated: 12 October 2026 · By the Asuraa Team

Quick answer: Most Indian education loans give a moratorium of the course period plus up to one year before EMIs start, but interest usually builds during it. For FY 2026-27, interest paid (not principal) is deductible for up to eight years under Section 129 of the Income-tax Act, 2025 (old Section 80E), only in the old tax regime. Floating-rate loans to individuals generally carry no prepayment charge. This is general information, not financial advice.

Key takeaways

• Under the IBA model scheme followed by many banks, the moratorium is the course period plus one year, and repayment can stretch up to 15 years after it.
• Interest usually keeps building during the moratorium; paying even the interest during this time can reduce the amount you start EMIs on.
• For FY 2026-27, education loan interest is deductible under Section 129 of the Income-tax Act, 2025 (formerly 80E) for up to eight years, old regime only.
• RBI rules say lenders should not charge prepayment fees on floating-rate loans to individuals for non-business purposes; confirm in your sanction letter.
• If you cannot pay an EMI, talk to the bank before the due date; a missed EMI is reported to credit bureaus and can hurt future borrowing.

This is general information, not financial advice. Loan terms vary by bank and scheme, so your sanction letter is the final word.

How the moratorium works

The moratorium (repayment holiday) is the time after you take the loan when you do not have to pay EMIs. Under the Indian Banks' Association (IBA) model education loan scheme, which many banks use, the moratorium is the course period plus one year, and repayment is in monthly instalments over up to 15 years after that. Some banks and private lenders use different terms, and some start EMIs earlier if you get a job sooner. Check your sanction letter.

Two points freshers often miss:

1. Interest usually accrues during the moratorium. How it is calculated (simple or compound) and whether it is added to the principal depends on your lender.
2. Paying interest during the moratorium is often allowed. It can lower the balance on which your EMIs are calculated. Ask your bank how they treat such payments.

When your EMIs start

Ask your bank, in writing, for:

• The exact first EMI date and amount
• The outstanding principal and accrued interest at the end of the moratorium
• Whether the rate is fixed or floating, and the benchmark it is linked to
• The repayment schedule (amortisation table)

Set up an auto-debit (NACH/ECS mandate) from the account where your salary arrives, and keep a small buffer there so a delayed salary credit does not cause a bounce. Add the EMI as a fixed cost in your first salary plan.

Tax deduction on interest (FY 2026-27)

The Income-tax Act, 2025 applies from 1 April 2026. For FY 2026-27 (tax year 2026-27), the deduction for education loan interest is in Section 129 of the new Act, which carries forward the old Section 80E rules:

Because the eight-year clock starts when you begin paying interest, paying interest during the moratorium can start the clock earlier. If you choose the old regime, tell your employer so TDS reflects it, and keep the bank's interest certificate. Our Form 16 guide explains where deductions appear.

Prepayment: what the rules say

RBI has said that lenders should not charge foreclosure or prepayment charges on floating-rate term loans given to individuals for non-business purposes. Its 2025 directions on prepayment charges apply to loans sanctioned or renewed from 1 January 2026. The IBA model scheme also states no prepayment penalty. Fixed-rate loans may have different terms, so check yours.

Before prepaying, compare:

1. The interest rate on your loan
2. The tax deduction you lose on interest if you are in the old regime
3. Whether you still have an emergency fund after prepaying

Ask the bank whether a part-payment reduces the EMI or the tenure, and get the revised schedule in writing.

Talking to your bank

If EMIs will strain your budget, contact the bank before the first due date. A simple email:

Subject: Education loan [account number] - repayment schedule and options

Dear Sir/Madam, my moratorium ends on [date]. I have joined [company] as [role] from [date]. Please share the outstanding principal, accrued interest, first EMI date and repayment schedule. I would also like to know the options for paying interest now, changing the tenure, and part-prepayment. Regards, [Name, phone]

Keep a copy of every reply and visit the branch with your offer letter and payslips if needed.

Avoiding default

• Never ignore a missed EMI. Late payments are reported to credit bureaus and affect your credit history.
• If you face a job loss or delay, inform the bank immediately and ask what options exist; do not wait for recovery calls. Our guide on what to do after a layoff covers the wider steps.
• Co-applicants (often parents) are equally liable, so keep them informed.
• Do not take an app loan to pay an EMI; it usually adds costlier debt.
• After the last EMI, collect a no-dues certificate and the return of any collateral documents.

A job makes repayment possible

If your moratorium is ending and you are still searching, asuraa.in lists fresher jobs from companies verified before posting, with apply links checked every morning. Read your offer with our guide on how to read a salary slip to plan the EMI from real numbers.

Frequently asked questions

When does education loan repayment start?

Under the IBA model scheme, after the course period plus one year. Your bank's terms may differ, and some lenders expect EMIs to begin once you get a job. Check your sanction letter.

Can I claim Section 80E in the new tax regime?

No. For FY 2026-27, the education loan interest deduction (now Section 129 of the Income-tax Act, 2025) is available only in the old regime.

Is principal repayment of an education loan tax deductible?

No. Only the interest portion is deductible, for up to eight tax years starting from the year you begin paying interest.

Can I prepay my education loan without penalty?

For floating-rate loans to individuals for non-business purposes, RBI rules bar prepayment charges. Fixed-rate loans may differ, so confirm with your bank in writing.

What happens if I miss an education loan EMI?

The bank may charge a penalty and report the delay to credit bureaus. Contact the bank early to discuss options. This is general information, not financial advice.