The Benefits of In-School Student Loan Payments

Just as it never hurts to start a term paper early, it never hurts to get ahead of your student loans. Though it is not typically required that students pay this debt down while still in school, it definitely pays to be proactive. In-school student loan payments – even as little as $25 a month – can save you a considerable amount of money in the long run.

How do in-school student loan payments help me save money?

Most students are not expected to begin paying off student loans until after graduation, but you don’t have to wait until repayment begins to take control of your student loan debt.

By making payments on your student loans while you’re still in school, you can reduce the total amount of your student loan debt, and that’s how you save yourself some money.

Why would I pay anything before I have to?

The short answer is: Interest. Loans become more expensive as time goes by, due to accrued and compounded interest (essentially, interest on interest).

The faster you chip away at debt, the less you will owe, and by taking initiative with budgeting and on-time bill paying, you establish good money habits.

How does student loan interest work?

Interest is the cost of borrowing money. It is calculated as a percentage of the principal, which is the total amount you’ve borrowed. Most student loan interest starts accruing at the time of the loan disbursement.

This interest does not typically capitalize, however, until after your graduation and grace period. This is when it is added to your principal. From that point forward, there is interest on that combined amount.

For this reason, we advise at least paying the interest that accrues while you are still in school.

How much savings are we talking?

Let’s say you are a freshman, you’ve taken out a $10,000 loan, and you’ve elected to pay the loan back over 10 years at an interest rate of 6%.

Pay $0/month while you’re in school

If you pay nothing while you’re in school, your total loan balance increases to $16,920. This is your most expensive option.

Pay $25/month while in school

If you elect to pay $25 per month while in school, the total cost of your loan will reduce to $16,471, saving you almost $450.

Pay $50/month while in school

By paying $50 per month while in school the total cost of your loan will reduce to $16,022, saving you almost $900.

Pay full principal + interest while in school

Paying full principal and interest while in school saves you the most money, by far. Your monthly payment will be $111 per month, but yields a savings of almost $3,600!

Through these scenarios, you can see how in-school payments save you money on the total cost of your loan.

If it is not feasible for you to take on student loan payments during your first semester or two, consider starting the process later. You can begin paying down your student loans at any time while you are in school – and every little bit helps!

Check out our student loan repayment calculator to see how different repayment options can impact the total cost your student loan.


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