How Education Loan Interest Builds Before Repayment Starts

The loan grows before the first repayment

An education loan is usually drawn years before the first repayment is due. For most bank and private loans interest is charged throughout that time. What happens to it decides the balance your repayments are worked out on. This guide follows one loan through the study and grace months under three treatments of that interest, then through repayment.

Moratorium, grace period and capitalisation

An education loan usually has a period of study, and often a grace period after it, in which no repayment is due. Lenders call this a moratorium, a repayment holiday or deferment. Interest is normally still charged during it. That interest can be paid as it is charged, or left unpaid and added to the loan, which is called capitalisation. Repayment then starts on the larger balance.

The names differ by country. Indian banks speak of a moratorium or repayment holiday covering the course and a period after it. In the United States the terms are in-school deferment and grace period, and adding unpaid interest to the loan is capitalization. The arithmetic of a fixed-rate loan is the same under either name.

See the cost of waiting and of not paying interest

Enter the loan as offered. The result shows the balance when repayment starts, the repayment and the total interest, and beside them the same loan under each of the three treatments and with repayment starting at once. The chart shows the balance rising through the months before repayment and falling after, with the interest charged and the amount paid so far.

Interest before repayment, then a level payment

Monthly interest = balance × annual rate ÷ 12, rounded to 0.01. Before repayment starts there are three treatments. Paid as charged: the interest on the amount borrowed is paid each month and the balance does not change. Added when repayment starts: the same monthly interest is held without earning interest itself, then added to the loan in one amount. Added each month: each month's interest joins the balance and is charged interest from then on. Repayment is then a level monthly payment on the balance at that point, the smallest payment in steps of 0.01 whose month-by-month ledger clears the loan within the term.

Monthly interest = balance × r, with r = annual rate ÷ 12 ÷ 100; repayment = P × r ÷ (1 − (1 + r)^−n), with P the balance when repayment starts

Reconcile 20,000 at 9% with 48 months before repayment

Borrow 20,000 at 9% a year with 48 months before repayment and 120 monthly repayments. Interest is 150.00 a month. Left unpaid without compounding, 48 months add 7,200.00, so repayment starts on 27,200.00. The repayment is 344.56, the last one 344.21, and interest during repayment is 14,146.85. Total interest is 21,346.85 and the total paid is 41,346.85. Paying the 150.00 each month instead keeps the balance at 20,000.00: the repayment is 253.36 and total interest 17,601.58. Adding the interest each month gives a balance of 28,628.13, a repayment of 362.65 and total interest of 23,517.78.

In the first repayment, interest is 204.00 on 27,200.00 and 140.56 reduces the balance to 27,059.44. With repayment starting at once the same 20,000 would cost 253.36 a month and 10,401.58 of interest, so the 48 months add 91.20 to the repayment and 10,945.27 to the interest.

1. Enter an amount of 20000, an annual rate of 9, 48 months before repayment and a repayment term of 120 months.
2. Leave the interest treatment on added when repayment starts, without compounding.
3. Read the repayment of 344.56, the starting balance of 27,200.00 and total interest of 21,346.85, then compare the three treatments in the table.

Enter amount, rate, waiting months and term

Enter the amount borrowed as one sum, the annual rate, the months from the day the money is paid out to the month before the first repayment (0 if repayment starts at once), and the number of monthly repayments. Choose what your agreement does with interest before repayment. Choose a market for number formatting only.

Read the starting balance first

The balance when repayment starts is the figure that sets the repayment. Every month before repayment adds interest whether or not you pay it; paying it as charged stops it from being added to the loan and from earning interest in repayment. The comparison with repaying at once shows what the waiting months cost in total. A longer repayment term lowers the repayment and raises the interest.

The difference figures are signed: a positive repayment difference means the months before repayment raise the monthly repayment, and a positive interest difference means they add interest. When interest is paid as charged the repayment difference is zero, but the interest difference is not, because the interest paid before repayment is still a cost.

One sum, one fixed rate, level repayments

One amount borrowed at the start, a fixed nominal annual rate charged at one twelfth each month, equal model months, interest rounded half up to 0.01 each month, and level repayments at the end of each month once repayment starts. Unpaid interest held without compounding is added to the loan in one amount on the day repayment starts. There are no fees, insurance, subsidies, tax relief, payment holidays during repayment or early repayment.

What the figures leave out

Amounts above 0 up to 1 trillion with at most 2 decimal places; annual rates from 0% to 100%; 0 to 120 whole months before repayment; 1 to 360 monthly repayments. A balance above 1 trillion when repayment starts is not supported. The calculator does not model a loan paid out in instalments, partial interest payments, a rate that changes, a subsidised or interest-free government loan, a debt indexed to prices, or repayments set by income.

Most course loans are paid out term by term. Each instalment is charged interest only from its own date, so a single sum at the start overstates the interest before repayment.

No payment due does not mean no interest

Do not work out the repayment on the amount borrowed when interest has been added to it. Do not assume no interest is charged because no payment is due. Do not treat simple and compound treatment as the same; over 48 months at 9% they differ by 1,428.13 on 20,000. Do not use this for an income-based government scheme, where the repayment does not depend on the balance.

How each market treats study loans

In India, the model scheme reproduced by the RBI sets a repayment holiday of the course period plus one year, or six months after getting a job if earlier, with interest in that period on a simple basis; State Bank of India says unpaid interest for the moratorium is added to the loan when repayment begins, and that interest paid during it is not. In the United States, the CFPB explains that interest accrues on unsubsidised and private loans while you study and that unpaid interest may be added to the principal. In the United Kingdom, GOV.UK states that repayments depend on income, not on the amount owed, and that interest is applied monthly. In Canada, federal student loans have charged no interest since 1 April 2023. In Australia, Study Assist explains that HELP debts carry no interest and are indexed once a year. The calculator applies none of these rules; the market selector changes number formatting only.

Education loan compared with a plain EMI

With no months before repayment an education loan is an ordinary level-payment loan, and the Loan EMI Calculator gives the same repayment for the same amount. This calculator adds the months before repayment and the treatment of their interest. Use the Personal Loan Calculator when an upfront fee is deducted from the money you receive, and the Car Loan Calculator for a loan with a deposit and a balloon.

Educational scope

Educational arithmetic for a fixed-rate education loan with months before repayment and level repayments after. It is not a loan offer, an eligibility assessment, a statement of any lender's or government scheme's terms, tax guidance or financial advice. A lender's own rounding, day count, disbursement schedule, fees and conventions will differ; rely on the lender's documents.

Frequently asked questions

Sources and review

Sources reviewed Nov 14, 2026. Consult current local rules before relying on time-sensitive information.

• CFPB: how interest accrues while you are in school
• RBI: Model Educational Loan Scheme notification
• State Bank of India: education loan FAQ
• GOV.UK: repaying your student loan, how much you repay
• Government of Canada: interest-free Canada Student Loans from 1 April 2023
• Study Assist: loan increases and indexation