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March 14, 2019

Top 3 Reasons to Pay Interest In School

Make your student loans more affordable by interest payment while enrolled

Paying Interest While In School Is a Great Idea

Isn’t it great that many student loan lenders offer you to defer all payments on educational loans until after graduation. Or is it? Yes, it sounds great to be able to just concentrate on education and not on college costs. But what is happening to your student loan?

The good news if you have a student loan that is subsidized by the federal government or directly from your college, then there is no interest being charged as long as you are enrolled typically at least half-time and six-month grace period after you graduate. However, interest accrues on unsubsidized Direct Loans and private loans immediately after disbursement. If you are in your first year of college, you will typically have 51 months of interest accruing on your first year student loan(s) before you enter repayment.

Consider starting to pay interest on your student loans to reduce college costs now even when your budget it tight.

By paying interest while you are in school can save, up to almost 30% over the life of the student loan.  Can you image saving this much on college costs?

If you opted to make interest-only payments while you were in school and during the grace period on a $5,500 student loan at an interest rate of 5.05%, then you will pay about $23 a month. If you don’t make any payments, this means you would have racked up over $1,100 in interest that will be added to your principal just before repayment. That will mean you will pay 22% more over the life of the student loan. 

Embody good financial habits 

By starting to pay while you are in school, you are taking the first step to gain more control over your finances. If you are used to having a monthly payment to student loans, there will be no surprise when it increases after your grace period.  

Lots of people who take out student loans fall behind if they have not started making monthly payments from the get-go.  Once you fail to make a payment that is required on a loan or other form of credit, your delinquency status is reported the credit bureaus.

Create a positive payment history

Student loans are usually reported to all the major credit bureaus.  Payment history is typically a leading  element used to calculate your credit score. Making on-time payment over time creates a healthy credit history and can positively affect your ability to get other forms of credit in the future.   

Photograph of Colleen Krumwiede
Colleen Krumwiede
Co-Founder & Chief Marketing Officer

Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education.  She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.

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