One Big Reason to Make Loan Payments In School: Why pay when you don’t have to? To save money!
If loans are part of your plan for college or career training, the first way to save is to do your research and pick the best loan. But there’s another secret to big savings: payments in school.
Some loans require payments while you’re in school – others offer in-school deferments, meaning you can wait until after you stop attending to start repayment. So why make payments if you don’t have to? To save money, of course!
If you have subsidized federal loans, in-school interest is paid by the federal government, but making small payments every month – perhaps $25 or $50 – reduces your balance, meaning lower required payments after you leave school, and a lower overall cost.
If you have unsubsidized loans, optional in-school payments pay off even more: Interest accrues while you’re in school – meaning that by the time you need to start repayment, the loan balance is already higher than it was when you took out the loan. Payments in school, even if only for the interest accruing, keep that balance lower.
Other benefits to in-school payments? You’re developing good repayment habits, which can make it easier to transition to repayment, and help your credit profile. And, some lenders (including the State of Alaska) offer additional perks, such as an interest rate reduction if you sign up for automatic payments while in-school.
Want to learn about other ways to save after you’ve borrowed? Check out our blog post on refinance.
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