When to Start Paying Off Student Loans: In School or After?

You don't always have to start repaying your student loans right away. Most lenders allow you to pause payments while you're still in school and for six-months after graduating. But you can also choose to begin paying earlier, even while you're enrolled.

Choosing whether to hold off on payments or to start right away depends on your financial situation. However, making payments while you're still in school can help you lower the total amount you'll owe after graduation. This can be important, as the average student graduates with about $30,000 in student debt according to the College Board.

Do you have to pay student loans while in school?

Most student loans don't require you to make payments while you're still in school, but you may have the option to start early if you choose.

For most federal student loans, payments are automatically paused until six-months after you graduate, leave school, or drop below half-time enrollment. This grace period gives you time to get financially settled before your payments are due. The only exception is parent PLUS loans, where parents need to request this grace period when they apply.

If you have private student loans, your lender may offer similar options. Some allow you to start paying immediately, while others let you defer payments until you're finished with school. Private loans often come with a grace period, but the exact terms depend on the lender. You'll usually decide on your repayment plan when you apply for the loan.

How in-school deferment works

In-school deferment refers to the temporary pause on your student loan payments while you're enrolled in school. During this time, interest may accrue, depending on the type of student loan you have.

Federal student loan deferment

Federal in-school deferment provides relief by letting you postpone payments while you're enrolled. Here's how it works for different federal loan types:

• Direct Subsidized Loans: You won't need to make payments while you're in school. Interest that accrues during this time will be covered by the government, including the first six months after you leave school.
• Direct Unsubsidized Loans: You're not required to make payments while you're in school and for a six-month grace period after leaving, but interest will still accrue. If you don't pay this interest, it will be added to your loan balance when repayment begins, increasing the total you owe.
• Grad PLUS loans: You don't need to make in-school payments and you'll receive an automatic six-month grace period after graduating before payments begin. Interest will accrue during this time.
• Parent PLUS loans: You won't be granted an automatic deferment while in-school or during the grace period - parents must request a deferment when applying for the loan.

Private student loan deferment

Private student loan lenders typically give you a few different repayment options while you're in school, including deferment. The exact repayment choices will vary by lender.

When you apply for your loan, you'll usually select the repayment option that best fits your financial situation and goals. Each option offers different levels of flexibility, so it's important to understand how they work before making a decision.

What are the benefits of in-school repayment?

You may not be required to make student loan payments while you're in school, but there are several financial benefits to starting early:

• Reduce your loan balance: If you start making payments before graduation, you'll start chipping away at your loan balance. This means you'll have less to pay off after you finish school.
• Avoid paying more interest: Interest on most loans builds up while you're in school. If left unpaid, it gets added to your loan balance through capitalization, meaning you'll owe interest on top of interest. Making payments can prevent this from happening.
• Save money on interest: The more you pay down your balance, the less interest you'll owe each month. Over time, making payments while in school can lead to significant savings on interest charges.
• Get out of debt faster: Starting payments early puts you on the path to paying off your loans sooner, freeing up your budget for other financial goals after graduation.
• Build good financial habits: Making regular payments while in school helps you get used to budgeting for loan payments, so you're not caught off guard when they become mandatory after graduation.

How to start repayment while in school

If you want to start making student loan payments while in school, consider the following strategies.

• Decide how much to pay: Since you aren't required to make payments, think about how much you can comfortably afford each month. At the very least, try to cover the interest that's building up on your loans. If you can pay more, consider putting extra money toward the principal to reduce your balance faster and shorten the repayment period.
• Adjust your budget: Take a close look at your budget and see where you can make room for student loan payments. If cutting back on expenses isn't possible, you might want to explore part-time work or a flexible side job to generate extra income and keep up with payments.
• Set up automatic payments: Many lenders offer a small interest rate discount if you enroll in automatic payments. Setting this up ensures you don't miss a payment and helps you stay on track with your financial goals.

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