If you’re one of those unlucky enough to have unsubsidized student loans, then you should consider paying just the interest on your student loan while you’re in school. With subsidized student loans, the government pays the interest. That means that when your post-graduation deferment ends and you start having to repay the money you borrowed, your opening balance will be exactly the amount you’ve borrowed over the years.
If, however, you have a private loan or unsubsidized federal loans, that balance will be the total amount you borrowed plus all the accumulated interest over the years. If you’re unaware of something called compound interest, you might be surprised at how much your loan has grown.
While you don’t have to pay anything towards your student loans until 6 to 9 months after you graduate, many students choose to pay the small monthly interest payments on their loans while they’re in school. It isn’t usually a lot of money, but even these small contributions of $50 or $100 per month can add up and mean that you pay much less interest over the long term and have smaller monthly payments.
How Much Can You Save?
There are great articles that show you how you can save thousands of dollars and greatly reduce your monthly payments if you pay interest on student loans while in school. In fact, this example shows that you can save several thousand dollars over the course of your loan and around $75 less in monthly payments over the course of your loan. Interest is the worst, the less you pay over the course of your loan the better!