Jamie Grill/Getty Images
- As soon as your college receives loan funds, your lender will start charging interest on your loans.
- If you make interest payments while in school, you’ll save money over the life of your loan.
- The government will pay interest on Direct Subsidized Loans until the end of your grace period.
- Read more of Insider’s student loan coverage here.
Most student loans don’t require you to make full payments until after your grace period – a stretch of several months after you graduate from school – but interest starts accruing on your loans as soon as they’re paid out. You may want to start making interest payments while in school to save money over the life of your loan.
Which type of loans accrue interest?
Direct Subsidized Loans from the federal government don’t accrue interest until the end of your six-month grace period. However, Direct Unsubsidized Loans and Direct PLUS Loans will rack up interest as soon as your loan funds are disbursed. Private loans will also accrue interest as soon as the lender dishes out your funds.
Private lenders typically offer three or four choices for repayment plans, including an interest-only repayment option. With interest-only payments, you’ll pay the interest on your loan until your grace period is up, then pay both principal and interest.
Why should I try to pay interest while I’m in school?
The cost of unpaid interest while you’re in school is significant because of capitalized interest. Capitalized interest is unpaid interest tacked onto your loan balance after nonpayment periods, including forbearance, deferment, and after your grace period. Your overall loan balance will increase, and you’ll then pay interest on that higher amount, making the total cost of your loan greater.
Just making interest payments while you’re in school may save you hundreds or even thousands of dollars in the long term.
How does COVID-19 affect student loan interest?
Federal student loans are in COVID-19-related forbearance until January 31, 2022, so no interest will accrue during this time. Private student loans don’t come with this protection, and interest on your loan will continue to grow. You may be able to request a forbearance period from your private lender, though interest will like continue to accrue during that period.
If you have federal loans, you might want to take advantage of this period that you aren’t required to make payments to whittle down your balance. That way, when payments restart, you’ll pay less in total interest because your balance is smaller.
Which student loans do I qualify for?
You can find out what financial aid you’re eligible for, including loans, by filling out the Federal Application for Student Aid. Federal student loans come with fixed interest rates, and you can find those rates here for loans disbursed on or after July 1, 2021, and before July 1, 2022. You may consider applying for private loans to bridge the gap if federal loans aren’t enough.
However, private loans should be one of the last options for financial assistance. Even though private loans have variable-rate and fixed-rate loan options as well as the possibility of lower rates, federal loans come with better borrower protections and more flexible repayment plans.
Review your loan options carefully so you know exactly how much interest you’re paying, and try to get ahead on paying off interest before it capitalizes.
Powered by WPeMatico
