Benefits of Paying Student Loans While in College

Understanding the repayment process for your student loans can be a bit confusing, especially as you are working towards building and/or maintaining a solid financial foundation. As you are thinking about your future plans financially, you may want to rethink on how your loans are going to be repaid, WITH INTEREST!

As I reflect on my experiences as a college student, not once did I want to think about repaying my loans, especially with interest. During that time, my student loans were in deferment status. Being in deferment status meant that I was not required to make payments due to my enrollment status of at least half-time.

What’s good about this? Depending on the type of loan(s) you have, the federal government may pay the interest on your loan during a period of deferment. Qualified student loans where the government may pay the interest include: Federal Perkins Loan, Direct Subsidized Loan, and/or Subsidized Federal Stafford Loan.

Sounds great right? However, interest is not paid on your unsubsidized loans (or on any PLUS loans) by the government while you are enrolled in school. You (as a student) are responsible for paying the capitalized interest that accrues during the deferment period, but your payment is not yet due until you have been out of school for at least six months. If you don’t pay the interest on your loan during deferment, interest will accrue (added to your principal balance), and the amount you pay in the future will be higher (and we’re talking hundreds or even thousands of dollars higher).

Consider this! Although not having to pay on your student loan(s) while in deferment may decrease a monthly bill, paying at least the capitalized interest (on unsubsidized student loans) will help you out in the long run. Contact your student loan servicer to see how much capitalized interest is accrued each month. If you only have subsidized student loans, take this time to make at least a small payment each month (even $15) because 100% of your monthly payment on your subsidized loans (while in deferment) will go towards your principal balance; Thus, decreasing the total amount of principal owed when deferment ends and interest kicks in. 

You will THANK YOURSELF when it’s time to start repaying your subsidized and/or unsubsidized student loans.

See a comparison chart of paying vs. not paying student loans while in college at http://www.youcandealwithit.com/borrowers/making-payments/benefits.shtml.