- As soon as your college receives the loan funds, your lender will start charging interest on your loans.
- If you pay interest 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.
- Learn more about Insider’s student loan coverage here.
Most student loans don’t require you to make full payments until after your grace period – a period of several months after you graduate – but interest begins to accrue on your loans as soon as it’s paid off. . You may want to start paying interest while in school to save money over the life of your loan.
What type of loan bears interest?
Direct subsidized loans from the federal government do not bear interest until the end of your six-month grace period. However, unsubsidized direct loans and PLUS direct loans will earn interest as soon as your loan funds are disbursed. Private loans will also earn interest as soon as the lender pays your funds.
Private lenders typically offer three or four choices of repayment plans, including an interest-only repayment option. With interest-only payments, you’ll pay the interest on your loan until the end of your grace period, then pay both principal and interest.
Why should I try to pay interest while in school?
The cost of unpaid interest while you are in school is significant because of capitalized interest. Capitalized interest is unpaid interest added to your loan balance after periods of non-payment, including forbearance, deferral, and after your grace period. Your overall loan balance will increase, and you will then pay interest on that larger amount, which will increase your total loan cost.
Just paying interest while you’re in school can save you hundreds or even thousands of dollars in the long run.
How Does COVID-19 Affect Student Loan Interest?
Federal student loans are on forbearance related to COVID-19 until January 31, 2022, so no interest will accrue during this period. Private student loans do not come with this protection, and the interest on your loan will continue to rise. You may be able to request a forbearance period from your private lender, although interest will continue to accrue during this period.
If you have federal loans, you may want to take advantage of this period when you are not required to make payments to reduce your balance. This way when the payments start again, you will pay less total interest because your balance is smaller.
What student loans am I entitled to?
You can find out what financial assistance you are entitled to, including loans, by completing the Federal Student Assistance Application. Federal student loans have 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 fill the gap if federal loans are not enough.
However, private loans should be one of the last options for financial assistance. While private loans have variable and fixed rate loan options as well as the possibility of lower rates, federal loans come with better protections for borrowers and more flexible repayment plans.
Carefully review your loan options so you know exactly how much interest you are paying, and try to pay off the interest before it is capitalized.