Why You Should Be Paying the Interest on Your Student Loans While in College
If you received a federal student loan to help you pay for your college tuition, you were probably asked if you want to begin paying the interest on your student loan or if you want to wait until after you graduate. Many students automatically pick to wait until after graduation because they think they are saving money and they do not have to worry about coming up with interest payments while in school.
Although you may think that waiting is a good option, what if we told you that it is actually beneficial to pay your student loan interest while you are in school? Now that we have changed your way of thinking, let’s talk about WHY it is a good idea.
How Many Students Are Really in Debt?
Starting a career has never been this worrisome – thanks to the mounting student debts. You have probably heard that the student loan debt is astronomically high and many students are in debt, but have you ever wondered just HOW many students actually are? Sometimes people will skew the numbers to make the situation worse than it is, but in this case, it is not as skewed as you may think.
In fact, it is estimated that seven out of every ten graduates has some form of student loan debt. The more tuition continues to go up, the closer this number closes in on itself.
Also, another thing to keep in mind is that the amount of debt each student owes is quite high. The average amount of debt for a four-year degree graduate is $30,000. Yikes!
The Problem That Lies Ahead
When a student takes out a loan to pay for their schooling, they think that the amount they borrow is the amount they will pay. Therefore, when students receive their student loan repayment bill, they are shocked to see how much money they actually owe. Not a good start to launch a career.
For instance, when you took out that $4,500 loan, you probably assumed you would owe back $4,500, but this is not the case. In fact, you will owe much more than that because of the interest rate. Both federal unsubsidized loans and loans from private lenders accumulate interest during periods of deferment. Ah-ha! We found the culprit of those high numbers – interest.
It is extremely important to pay attention to any interest rate on your student loan because this number will help you determine just how much you will be paying at the end of everything.
How Interest Works
Interest on your student loan may not begin to accrue right away, but it will at some point. The way the interest works is that it is based on the principle balance on your loan at the time plus any already accrued interest. Therefore, the interest is not based on your original loan amount, but the current amount.
For example, if you have a total graduation loan debt of $30,000 and you did not pay any interest in school, you would accrue roughly $4,300 in interest based on a 6.5 percent interest rate. Your new loan amount is $34,300. This doesn’t seem like a lot right? Wait, this is in addition to your regular principal and also interest payments.
Pay Your Interest While in School
To help keep your loan balance low, you should pay your interest while you are in school. Don’t wait until you get a job or start a career. You may be thinking that you don’t want to work or you don’t want to have to worry about the extra stress, but let us tell you something now – the interest you pay monthly will not be a significant amount and you can do it.
For example, you may only have to pay $50 per month while you are in school. Doing this will greatly reduce your loan amount when you graduate and you will thank yourself later on.
Also, you should consider speaking with your student loan servicer as they may offer you a discount for paying your interest while you are in school. It is not uncommon to receive discounts and you will actually benefit the most from this.
If you want to minimize the amount of debt you will owe when you graduate from college and get into the workforce, consider paying your student loan interest while in school. Trust us, you will thank yourself later on.
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