In short
- A moratorium delays repayment while you study; interest may still accrue during it.
- If interest is capitalised rather than paid, the loan grows before repayment even begins.
- Paying interest during the moratorium reduces the total cost, and the decision is better made before, not after.
What a moratorium is
A moratorium is the period before repayment begins — typically while the student is studying, and often a short grace period afterwards. It exists so that repayment does not start before the course is finished. It does not mean the loan is dormant.
Interest does not wait
Interest is charged on the outstanding amount from the point funds are disbursed, whether or not an instalment is due. During a moratorium, interest continues to accrue. This is the part borrowers most often discover too late.
Capitalised or serviced
How that interest is treated changes the size of the loan substantially. If it is capitalised — added to the principal — the outstanding grows, and future interest is then charged on the larger amount. If it is serviced — paid periodically — the balance stays smaller and the compounding is avoided.
The decision whether to pay interest during the moratorium is often worth more than any later negotiation. Model both before the course begins.
Disbursement in stages
Education loans are often released in stages against the fee schedule rather than as one lump sum. Each disbursement adds to the outstanding on which interest accrues. Keeping a clear record of what has been disbursed, and when, helps you see what is actually being charged.
Planning before the course starts
- Decide who will service the interest during study, and whether it will be paid or capitalised.
- Understand when repayment begins, and whether the grace period is included in the moratorium.
- Keep every disbursement record and the fee schedule together.
- Build a repayment plan for the period before the first instalment falls due, not after.
What to read in the sanction letter
The sanction letter sets out the moratorium period, the treatment of interest, and the date repayment begins. These three lines decide more about the cost of the loan than most borrowers realise, and they belong to the same document you sign at the start.
Questions this raises
Is repayment always after the course?
- Often after the course or a grace period, but it depends on the lender and the loan. Read the sanction letter rather than assuming.
Should we pay interest during the study period?
- Servicing interest during the moratorium usually reduces the total cost meaningfully, because it prevents capitalisation. Model both options on the actual amounts before deciding.
Read the full guidance on education loan.