As you work hard through college, make friends for life, and pursue your degree, you may not be thinking about paying off your student loans. After all, that could be years from now, especially if you're a freshman. While it's technically correct that you don't have to think about student loan payments until after graduation, you may want to think about student loan interest now.
For the class of 2018, nearly 69 percent of graduates had student loans, and the average loan amount per student was $29,800. The good news for students and parents is that student loans don't need to be repaid until after you graduate or drop below half-time status.
However, loans accrue interest while you're in school. So by the time you graduate, unpaid interest could add hundreds or even thousands of dollars to your original loan amount. Because of that, you may want to consider paying student loan interest while you're in school.
Benefits of paying interest while in school
The table below shows what happens if you decide to pay the interest on a $5,000 loan during school and what happens if you decide to defer the interest. Over the life of the loan, you could save over $500! Paying interest on student loans while you're in school can also lower your monthly payments once you get into repayment.
So if you're not paying interest, it's added to the principal amount you originally borrowed. Adding interest will continue to increase the amount you will have to pay back once you enter the loan repayment period.
After four years of college, that could be a significant increase from the original loan amount. It may be wise to consider paying student loan interest while you're in school if the payments work within your budget.
Is there a downside to paying student loan interest early?
Money is tight for college students. Don't make things worse by sending your loan provider a chunk of money you can't pay back. Take a good look at your budget and make sure you have enough funds to pay for the things you need right now, like books, rent, and food. While paying interest on student loans while you're in school is a good idea, it's still optional.
There are no prepayment penalties on federal or private student loans. So if you have the extra money, there's no downside to paying the interest on the loan while you're still in school.
Borrow only what you need
The decision to borrow money for college should not be taken lightly and should not be your first resort when it comes to paying for school. Remember to complete the Free Application for Federal Student Aid (FAFSA, for its, each year you plan to enroll). It will qualify you for federal and state financial aid, including scholarships, grants, and loans.
Apply to as many scholarships as possible. Earning an extra $500 here and there can really help you make ends meet. Consider getting a part-time job during the school year. If a set work schedule just doesn't work with your school schedule, there are more flexible jobs you can do when it's convenient for you. Consider tutoring, working as a rideshare driver, or sitting on a pet.
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