Part Period Interest in Education Loan: Meaning, Calculation Method, Importance

Part-period interest in education loans is something that can seriously impact your total cost — and most borrowers don’t even know what it is. This is the extra interest that accrues as soon as the money has been disbursed before official repayments start.

Here’s the reality: You borrow ₹20 lakhs for your degree, believing you’ll only start paying after graduation. This isn’t always true. 

Part-period interest in education loans starts accumulating from day one itself. And if you don’t understand it, you’re looking at thousands in unexpected charges during your education loan moratorium period.

What is part period interest in education loans?

Say you take a house on rent — normally, you’d pay from the 1st to the 30th or 31st of each month, right? 

But what happens if you move into a house on, say, the 15th? 

You’d still owe rent from the 15th to the 30th or 31st, correct? 

Naturally, though, the amount during this time will be less than a full month’s rent. 

In other words, your rent for this period would be a proportionate part of the whole month’s rent. It’s the same with part-period interest in education loans.

Let’s break that down a little further by looking at what a typical education loan disbursement looks like. Now, most students don’t realize that loans rarely get paid out in one go – instead, they follow your semester payment schedule.

Let’s look at how your ₹20 lakh loan actually gets paid out:

• July 1st: Loan approved for ₹20 lakhs total
• July 15th: First disbursement of ₹5 lakhs for semester 1
• October 15th: Second disbursement of ₹5 lakhs for semester 2
• Similar disbursements continue for the remaining semesters

Now, here’s where it gets interesting: part period interest is calculated separately for each disbursement. So your July 1st disbursement will have its own part period interest calculation, as will each successive “instalment”, for want of a better word. 

Let’s focus on just your first disbursement of ₹5 lakhs to understand how this works. The banks use this formula:

Part Period Interest = (Disbursement Amount × Interest Rate × Actual Number of Days) ÷ (365 × 100)

Five important things to keep in mind about part-period interest in education loans:

1. These charges either get added to your loan amount or need to be paid monthly
2. It starts accumulating from your very first disbursement, not when you graduate
3. Each of your disbursements (₹5 lakhs in our example) has its own part-period interest calculation
4. The calculations use actual days, not rounded months, making it harder to estimate
5. Many students focus on the total loan amount (₹20 lakhs) and forget about these interim charges

Note: Part-period interest is one of the many lesser-known aspects of managing your education loan. This highlights how useful it is to have guidance by your side throughout the process.

Towards this, FundRight (by GradRight) helps in two important ways: first, it provides a platform where you can compare and find a loan from 15+ top lenders, both domestic and international, within as little as 2 days. Additionally, once you choose your loan, approvals can happen within 10 days.

Second, at every stage of your loan journey, you have access to an unbiased FundRight expert who can guide you through any part of the loan search, approval, or disbursal process. 

This support makes sure you’re informed and confident, right from comparing offers to navigating aspects like part-period interest and more.

With that done, in the next section, we will look at why part-period interest in an education loan matters.

Also Read: What is Educational Loan Sanction Letter & How to Get Your Letter?

Why does part-period interest matter?

When put alongside our ₹20 lakh example, a few thousand seems like a rounding error, but it can quickly pile up. 

Let’s show you why this matters with a real-world example that we’ve seen countless students face.

Back to our ₹20 lakh loan that gets disbursed in ₹5 lakh chunks. Let’s follow a typical student’s journey through an entire year to see how part-period interest snowballs:

First Semester (July):

• First disbursement: ₹5 lakhs
• Part period interest (July 15-31): ₹2,192
• Regular monthly interest: ₹4,167

Second Semester (October):

• Second disbursement: ₹5 lakhs
• New part period interest (October 15-31): ₹2,192
• Regular monthly interest now increases to: ₹8,334 (on ₹10 lakhs)

By the end of your first year, you’ve borrowed ₹10 lakhs. On that ₹10 lakh, the total part period interest paid: ₹4,384 (from two disbursements). And don’t forget the regular interest accumulated, which in this case is approximately ₹75,000

That’s nearly ₹80,000 in interest alone – before you’ve even started your second year. And remember, this is just half of your total loan amount.

So, all of this goes to say that there are three main reasons why part-period interest in an education loan matters.

First, it’s a rather hidden charge that might go unnoticed. Your loan might be ₹20 lakhs on paper, but part period interest silently adds to your education loan repayment period burden. These charges get capitalized, meaning they’re added to your principal amount. 

Next comes the reality check about financial planning. 

Most students believe they won’t need to pay anything during their studies – that’s a costly misconception. 

With part-period interest, you might need to start paying interest while you’re still studying. 

Lastly, if you don’t stay on top of your part-period interest, it will just keep adding to your principal amount in the background. Most people won’t notice it until it’s time to start repayments, and then they find that their EMIs are 15-20% higher than they anticipated.

Here’s a pro tip we give to all our students: Create a separate ‘interest fund’ right from the start. 

For a ₹20 lakh loan, set aside at least ₹8,000-10,000 monthly during your moratorium period education loan. This covers both your part-period interest and regular interest payments, preventing them from getting added to your principal.

So now, we’ve understood why part-period interest in an education loan matters — it’s not an insignificant factor. In the next section, we’ll cover how it’s actually calculated.

How to calculate part-period interest in education loans?

Using the formula we gave you earlier, let’s calculate the part period interest for just your first ₹5 lakh disbursement. 

Just for reference, the formula is Part Period Interest = (Disbursement Amount × Interest Rate × Actual Number of Days) ÷ (365 × 100).

So we have:

• Disbursement amount: ₹5 lakhs (first instalment of your total ₹20 lakh loan)
• Interest rate: 10% per year (for example, banks have their interest rates)
• Days: 16 (because we’re calculating from July 15th to July 31st)

Part period interest = (5,00,000 × 10 × 16) ÷ (365 × 100) = ₹2,192

This ₹2,192 is just for the first disbursement’s partial period, hence the name. 

Remember, this same calculation will happen for each of your future disbursements during your moratorium period. 

So if you’re getting ₹5 lakhs four times, you’ll need to factor in these extra charges four times a year.

The most common mistake we see students make is forgetting that part period interest keeps stacking up. By your final disbursement, you’re calculating interest on the entire ₹20 lakhs, even for partial periods. This is why that initial ₹2,603 can seem manageable, but by your last semester, even a few days of part-period interest can cost you over ₹10,000.

Your education loan repayment period might not have officially started, but these calculations matter right from day one. We always advise students to use a part-period interest calculator (most banks provide one) to track these charges. The alternative is keeping a detailed spreadsheet, but why make life harder than it needs to be?

A practical tip we’ve learned over the years is to always round up your calculations. If your part period interest comes to ₹2,603, budget for ₹3,000. This small buffer adds up over time and can save you from financial stress later. Remember, knowing what part period interest in education loans is is just one half of the equation. You also need to have a plan to pay it off.

And with that out of the way, we’ll now share our best tips to manage part-period interest in education loans effectively. 

Also Read: Non Collateral Education Loan for Study Abroad: How To Apply?

Tips for managing part-period interest effectively

These are four strategies that have been proven to work.

Set aside extra money for interest payments 

The most effective strategy we’ve seen is setting up a dedicated interest payment fund from day one. Here’s how it works: Let’s say your total education loan is ₹20 lakhs, disbursed in ₹5 lakh instalments. Instead of waiting for the part-period interest bills to surprise you, start setting aside money immediately. For a loan of this size during the moratorium period education loan, you should aim to save about 5-10% of each disbursement amount specifically for interest payments.

Try and have loans disbursed close to the 1st of the month

Try and coordinate with your college’s finance department to have your disbursement as close to the bank’s cycle as possible. For instance, if your bank calculates interest from the first of each month, try and have your disbursements as close to the 1st as possible. This is not always an option, but there’s no harm in asking. A simple move like this could save you tens of thousands over the repayment period.

Keep all your papers in order

There’s also a smart way to handle the documentation that can save you money. Keep all your fee payment schedules and admission documents ready well in advance. Why? Delays in document submission often lead to delayed disbursements, which can throw off your entire interest calculation cycle. There have been cases where a simple delay of a week in document submission led to an extra month of part-period interest in education loan charges.

Pre-pay your interest wherever possible

Another key strategy is to pre-pay the interest. Most, if not all major banks allow you to start making interest payments from the day of disbursal itself. If your financial situation allows, pay off the part-period interest as it’s generated. If you can pay off extra, well and good, your total borrowing capital will go down. If you can’t, that’s okay. However, if you prepay the part-period amount, you at least avoid paying interest on interest.

Now that you’ve understood our top tips, let’s talk about repayment.

What is the impact on repayment?

Remember our ₹20 lakh loan? If you don’t manage the part period interest during your moratorium period education loan, here’s what typically happens.

Say you ignored all part-period interest charges during your two-year MBA program. Each disbursement generated roughly ₹2,500 in part period interest, with four disbursements per year. 

That’s ₹20,000 annually just in broken period interest. Add regular interest charges, and you’re looking at about ₹1.5 lakhs in total interest over your study period. If you haven’t paid this during your moratorium, it gets added to your principal.

So instead of starting your education loan repayment period with ₹20 lakhs, you’re actually beginning with ₹21.5 lakhs. At 10% interest over 7 years, this difference translates to an EMI increase of about ₹2,800 per month. That’s ₹33,600 extra per year, or roughly what you might spend on rent in a tier-2 city.

And bear in mind that we’ve taken the tuition figures from India. To pursue a foreign MBA, in say, the USA, multiply these figures by at least 5x.

So there it is. While it might seem overwhelming at first, remember that this interest starts impacting your loan from the very first disbursement. During your moratorium period on education loan, every decision about interest payments shapes your repayments.

We encourage you to be proactive rather than reactive. Don’t wait until your education loan repayment period begins to think about these charges. Calculate your part-period interest for each disbursement, set up that interest payment fund, and stay ahead of your payments when possible. Your degree should open doors to opportunities, not saddle you with unexpected financial burdens.

And with that, we come to the end of this article. We hope you found it useful, and we’ll see you in the next one.

Also Read: Education Loan in India: Interest Rates, Process, Best Banks & More

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