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How To Pay an Education Loan Without Interest?

Q: Is it possible to get an education loan without interest?

No. Fully interest-free education loans In India are not offered. However, students can get interest subsidy during the moratorium period through government schemes like the Central Sector Interest Subsidy Scheme (CSIS) if they meet income and eligibility criteria.

By Tata Capital
14 December 2025
11 mins read
1865

How To Pay an Education Loan Without Interest?

An education loan is a very useful financial tool for students who wish to pursue higher education. Whether you want to study at a premier Indian institution or at a foreign university, you will have to pay a lot of money to complete your course. To pay for this, students commonly opt for education loans.

A common question students have is – how to pay off an education loan without interest. Is it really possible to pay off an education loan without interest? The answer is no, but fortunately, there are some ways in which the interest burden can be reduced. Read on to know more.

How to Reduce Education Loan Interest Burden

Pay Off Education Loan During Moratorium to Minimize Interest

When you take a loan for higher studies, your EMIs start later. This is the benefit of education loans. They offer a moratorium period, which is equal to the duration of your course plus one year. The idea behind this is to allow you to secure a job, become financially independent and then repay the loan you took. However, the question remains – how to pay an education loan without interest?

The smart repayment of education loans plays an important role here. By repaying the entire loan within the moratorium period, you can effectively avoid paying a lot of interest. This is mainly because only simple interest is charged during this period. And, since there is no prepayment charge associated with education loans, you can pay off an education loan and close it at any time without having to worry about a penalty.

Also, read – Personal Loan vs Education Loan

Avail Scholarships to Lower Education Loan Interest Burden

When looking for a student loan without interest, explore all the different financing options. There are many scholarships available for meritorious students. These scholarships are available in almost every institution globally. If you manage to get a scholarship, the financial burden will be reduced.

Also, you can effectively use the scholarship money (or a part of it) to clear off the interest component of your education loan. Then, rework the schedule for repaying the education loan. This, therefore, works as another very handy way in which you can have a practically interest-free education loan.

Also, read – Courses Eligible for Education Loan in India

Government Subsidies to Reduce Education Loan Interest

The next effective answer to your question is how to pay off an education loan without interest. There is an interesting way in which you can lower the interest burden on your education loan simply by opting for government schemes and subsidies. Though you can’t really get an education loan without interest, there are many subsidies available on education loans. These are facilitated by the Government of India, so they are fairly transparent and safe.

If your family has an annual income of under Rs 5 lakhs or if you fall in a Minority or Backward Class, you can apply for these subsidies. The subsidies come in handy and allow you to save a lot of interest money, which proves to be very useful in the long run. Technically, there may not be a student loan without interest. However, you can save money by using a subsidy.

Also, read – How To Claim Tax Benefits On Education Loan?

Increase EMI Volume to Cut Down Loan Tenure and Interest

If you want to know how to pay an education loan without interest, here is a tip for you. If you land a good and high-paying job after you graduate, speak to your lender and change the schedule of repayment of the education loan. Opt for a higher volume of EMI so that the loan tenure gets shortened.

The interest component of the student loan is added to your monthly EMIs, so when you reduce the total number of EMIs, you also reduce the total interest amount. This is another good way in which you can reduce the interest burden on your education loan and effectively have a loan without interest for students.

Also, read – Facts you need to know about Education Loan

Using Personal Loans to Manage Education Loan Interest

You can check for personal loan options for education from Tata Capital if the rate of interest is low enough, which can be used to set off the education loan. Personal loans are also beneficial tools that allow you to pursue your dream of studying at a top university.

Listed below are the top benefits you get when you opt for a personal loan to pay for your higher studies:

Flexible

A personal loan is very flexible. You can borrow the amount that you require without being bound by any rules. Also, you can choose the duration, have a say in the interest rate and fix the EMIs yourself. The flexibility factor in a personal loan makes it a much sought-after financial tool.

Low interest if the high credit score

You can’t get a student loan without interest. In fact, the interest rate on an education loan is fixed. You cannot do anything to change the interest rate that the bank offers. However, the case is quite different for a personal loan. If you have a good credit score, you can get the loan at a lower rate of interest. Therefore, if you have been financially disciplined and have a high and healthy credit score to boast of, make use of it by getting a lower personal loan interest rate.

Very easy to get

The process to get a personal loan is much easier than that of getting a loan for students without interest. You can get the loan approved instantly if you match the eligibility criteria. Then, the loan amount will reach your bank account in just a few hours. Additionally, you can apply for the loan online in just a few minutes while comfortably sitting at home. This is very different from applying for an education loan, where you have to make several trips to the bank and submit many documents and then wait for the loan to get approved.

Convenient repayment structures

As mentioned above, personal loan are very flexible. You can decide on a repayment schedule that suits you. There are many flexible EMI schemes available, and you can go for the one that matches your requirements. Hence, it works as a great substitute for a student loan without interest.

No need for co-applicants

Last but not least, you can apply for a personal loan without any co-applicant if you meet the financial eligibility requirements. This is a big benefit, as in an education loan, in most cases, a co-applicant is required. Arranging for a co-applicant can be a challenge, and because of this, many students fail to get the education loan they apply for.

Consider taking a personal loan to clear off your education loan or to even finance your course if that is a viable option. This will help if you can’t find an education loan without interest.

Also, read – How to Get Education Loan After 12th?

Understanding How Education Loan Interest is Calculated

Education loan interest is calculated using the reducing balance method, where interest is charged only on the outstanding principal. To calculate education loan interest, lenders apply the education loan interest rate to the remaining amount after each EMI payment.

The loan interest formula generally used is: EMI = [P x R x (1+R)^N] / [(1+R)^N – 1], where P is the principal, R is the monthly interest rate, and N is the tenure.

This method ensures that as the principal reduces, the interest portion of the education loan EMI decreases over time, helping students manage repayments more easily.

Also, read – What is Fair Market Value

Government Education Loan Schemes and Subsidies in India

The Indian government offers several education loan schemes that make higher studies more accessible. Popular options include the Central Sector Interest Subsidy Scheme, PM-Vidyalaxmi Scheme, and Dr. Ambedkar Scheme. These government education loan programmes provide interest support during the moratorium period, reducing the overall repayment burden. Many education loan subsidies are designed for economically weaker sections, minority communities, and overseas studies. Students can also access funding through public banks under the Credit Guarantee Fund for Education Loans. These student loan schemes ensure easier approvals, lower interest rates, and added govt loan benefits for deserving students.

Also, read – What is Lien Amount

Step-by-Step Guide to Education Loan Repayment

Education loan repayment begins after the moratorium period ends, usually six months to a year after course completion.

Follow these steps to repay a student loan:

Review Your EMI Schedule: Check your education loan EMI schedule after the moratorium ends.
Choose a Repayment Plan: Select a loan repayment plan that fits your income and expenses.
Enable Auto-Debit: Set up automatic payments to repay a student loan on time.
Increase EMIs Over Time: As your income rises, you can increase EMI amounts for faster closure.
Follow a Structured Approach: Stick to these student loan repayment steps to stay consistent.

Also, read – What is loan modification

Tips to Save on Education Loan Interest Through Prepayment

Managing an education loan becomes much easier when you use smart prepayment strategies. Even small early payments and planning prepayment education loan can help you save loan interest, shorten tenure, and reduce long-term financial pressure.

Here are simple, practical ways to approach education loan prepay and make the most of early repayment student loan benefits.

Start Prepaying Early: Make small payments during the moratorium to reduce loan interest right from the start.
Use Bonuses or Extra Income: Use your bonuses, incentives, or savings toward prepayment education loan to cut interest cost.
Increase EMIs Gradually: As your income rises, increase EMI amounts to speed up early repayment student loan.
Opt for a Shorter Tenure: If you can afford higher EMIs, choose a shorter term to reduce total interest payable.

Also, read – What is loan outstanding amount

Common Myths About Interest-Free Education Loans

Sometimes, applicants may have certain student loan misconceptions surrounding terms, repayment, eligibility, etc. We clear such education loan myths to help you make informed choices. Here are key education loan facts to remember before applying.

Myth 1 – All Government Loans Are Interest-Free

Most government schemes do not waive interest for the entire tenure. They usually offer interest subsidy only during the moratorium. After that, normal interest applies.

Myth 2 – Zero Interest Loan Means No Cost

A “zero interest” label does not always mean a completely cost-free loan. Even if interest is subsidised, there may be processing fees, penalties on late payments, or other charges.

Myth 3 – Every Student Qualifies

Government interest subsidy schemes are targeted. Eligibility is usually based on family income, social category, and course type. Not every applicant can access these benefits.

Also, read – What is CKYC

How to Choose the Right Education Loan for Minimum Interest

Finding the best education loan starts with comparing lenders on interest rates, repayment flexibility, and subsidy eligibility. Begin with an education loan comparison across public banks, private banks, and NBFCs. Look for low interest education loan offers, keeping in mind that the final rate will depend on the lender’s policies and your financial profile.

Before you choose a student loan, review the processing fees and the moratorium terms. If your budget allows, selecting a shorter tenure lowers the total interest paid. Comparing all such factors across lenders to choose a transparent and cost-efficient financing option for your studies.

Also, read – Multi Purpose Loan

Conclusion

An education loan is a boon for many students. If you are a youngster looking to pursue a course in India or abroad, you may consider taking an education loan from a good lender. Also, you can repay an education loan after you start earning.

Choose a good structure for the repayment of education loans. Else, you can opt for a personal loan from a reputed loan provider like Tata Capital and pay off all the dues in a quick, easy and convenient manner.

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FAQs

Is it possible to get an education loan without interest?

No. Fully interest-free education loans In India are not offered. However, students can get interest subsidy during the moratorium period through government schemes like the Central Sector Interest Subsidy Scheme (CSIS) if they meet income and eligibility criteria.

How is interest calculated on education loans in India?

Interest on education loans in India is calculated using the reducing balance method. Lenders apply the interest rate only on the outstanding principal, which reduces with each EMI. During repayment, the interest portion is higher in the early EMIs and decreases over time as the principal gets paid down.

What is the moratorium period for education loans?

The moratorium period for education loans in India typically includes the course duration plus 6 to 12 months. During this time, students are not required to make EMI payments, though interest continues to accumulate.

Can scholarships help reduce education loan interest?

Scholarships generally cover partial or tuition fees that indirectly reduce the interest burden by reducing the borrowed amounts. Scholarships don’t cause a direct reduction, but they lower the principal for an education loan. You can explore university grants alongside loans for effective cost management.

What government subsidies are available on education loans?

In India, the main active subsidy programmes are the Central Sector Interest Subsidy Scheme (CSIS) and the Dr. Ambedkar Interest Subsidy Scheme. CSIS offers full interest subsidy during the moratorium period for students from families earning up to ₹4.5 lakh annually. The Dr. Ambedkar Scheme provides interest support for eligible OBC/EBC students pursuing higher studies abroad.

How does increasing EMI help in reducing interest burden?

Increasing your EMI helps reduce the interest burden because it brings down the outstanding principal faster. When the principal reduces early in the tenure, lenders charge interest on a smaller balance each month. As a result, the total interest payable over the entire loan period drops significantly. A higher EMI can also shorten the overall tenure, further lowering the interest you pay.

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