Most student loans come with a grace period, meaning you don’t have to make payments while you’re in school or for six months after you graduate. But even though payments aren’t due, you might consider making small monthly payments on your loan while you’re a student. If you can pay student loan interest while in school, your balance after you graduate won’t be as daunting.
Here are the ins and outs of starting college loan repayment early:
Making small or interest-only payments on your student loans while you’re in school can save you money over the life of your loans. Here are three reasons why this approach can be helpful for student loan borrowers:
Most student loans start accruing interest from the date they’re disbursed. The only exception is federal subsidized loans, which don’t start collecting interest until your grace period is over.
Other loans, however, such as federal unsubsidized loans, PLUS loans and private loans, all start accruing interest right away. If you don’t make any in-school payments, your balance will be higher upon graduation than the amount you initially borrowed.
This chart estimates how your balance will differ over four years if you make interest-only payments on a loan of $30,000 with a 5.00% interest rate vs. if you don’t.
|Repayment strategy||In-school payments of $66/month||Full deferment|
|Interest costs over 4 years||$3,162||$3,162|
|Balance upon graduation||$30,000||$33,162|
|Monthly payment on 10-year standard plan||$318||$352|
|Interest costs on standard plan||$8,184||$9,046|
As you can see, making payments of $66 every month will leave you with a balance that’s $3,162 less than if you elected not to make any payments during your grace period at all.
Once you start full repayment, your monthly payment will also be $34 lower and you’ll save nearly $1,000 on interest costs over the course of 10 years. If you’ve already borrowed student loans, you can crunch the numbers on your own debt with our student loan calculator.
When your grace period ends, the interest that has accrued on your student loans is typically added onto your principal balance. In the above example, you’d end up with a balance of $33,162, even though you initially borrowed $30,000.
At this point, student loan interest will start accruing on this new higher balance. This is called negative amortization. You’ll end up paying more interest than you would have if you decided to pay student loan interest while in school.
As you saw in the example above, your monthly payments will also be higher to account for the higher balance and increased interest charges. If you can afford to cover the interest while you’re in school, your monthly payment will be lower.
Another potential benefit of paying student loan interest while in school is the development of good financial habits. You’ll learn to manage your money, including how to make on-time payments on debt and how to budget for monthly bills.
You might need to track your spending with a budget or pursue a side gig to make some additional income. These efforts might also pay off down the line, since making on-time payments on debt is an important part of building your credit score.
While making in-school payments on your student loans could save you money in the long run, there is a potential downside — you might not have enough money to cover your living expenses.
If you’re struggling to make ends meet, it might make more sense to wait out your grace period. And while a part-time job or side gig could earn you some extra money, you also don’t want it to detract from your studies or college experience.
Finally, you might not feel that the interest savings are worth the effort if you’re expecting a high-paying job after graduation. Depending on your field of study and career goals, you might be easily able to cover the difference in interest savings after graduation.
Ultimately, the decision whether to pay student loan interest while in school depends on your personal bandwidth and financial situation.
If you decide to make payments on your student loans while in school, you can get started by logging into your student loan accounts. For federal student loans, you can log into the Federal Student Aid dashboard to see details about your loans.
Ultimately, however, you’ll want to log into your loan servicer’s website to set up payments. A student loan servicer is a company that manages your loans, and the company you send monthly payments to.
Once you’ve logged into your account, you should see how much interest you’ve been accruing each month and how to set up automatic payments. You can also contact your loan servicer by email or phone for more information.
It’s also worth finding out if you can make these payments automatic without having to manually input them each month.
Many students are juggling multiple student loans and might not be able to afford payments on all of them. Here are a few tips that can help:
Look at your student loans and find out which ones are accruing interest while you’re still in school. Then, pick the loan with the highest interest rate and focus on paying that one down first. This approach is known as the debt avalanche method of debt repayment. Even if all you can afford is $10 to $20 a month, making small payments limits the amount that interest can compound over time.
Students’ budgets are often small, which is why students with any sort of income have a huge advantage over others when it comes to making payments on student loans while still in school. If you can set aside money each month to start paying off your student loans, you’ll graduate in better shape than many of your peers.
If you haven’t created a budget, start now and develop good financial habits early. Check out budgeting apps to track where your money goes and try to save a few extra bucks each month for loan payments.
If your budget is too tight to make any student loan payments even after trimming expenses, then it might be time to consider increasing your income. You can earn extra cash on the side by getting a remote part-time job, an in-person side hustle or a paid internship.
Even if you can’t commit to a part-time job, you may still be able to find work as a tutor or researcher on campus that fits in with your class schedule.
If you can start making regular student loan payments while still in school, you’ll be more prepared to continue repaying your loans after graduation. Even if you’re only able to pay a few dollars each month, you’ll get a head start and build healthy financial habits that will help you down the road.
Dealing with your student loans while in school can also help you prepare for your first full student loan payment.