Should You Start Paying Back Student Loans While In School?

By default, students need to start making their student loan payments six months after graduation. However, that doesn’t mean you should wait to start paying off the loan. If you can afford it, you can start paying your student loan off while you’re still in school. 

Paying off student loans early comes with significant financial upsides. Keep reading to learn about the benefits of paying your loans off early.

Saving Money

Start by trying to make small payments, such as interest-only payments, on your student loans while you’re in school. This can help save a lot of money over time. Though the interest may seem small now, it can add up quickly and will increase the total amount that you’ll have to pay after your graduation. 

On most student loans, interest starts to accrue from the time the loan is given. Even if the student isn’t required to repay the loan while in school, the interest amount will still accrue. The student will be responsible for repaying the full loan amount plus the interest that is accrued on the loan.

If the loan goes into repayment, the unpaid interest is capitalized and this becomes a part of the principal amount of the loan. It increases the loan and the interest amount is calculated using the new loan balance. 

By making interest-only payments, you can easily avoid this and save money. Though, the monthly payments will be low each month and help in the long run. Federal loan borrowers can check StudentAid.gov to check the amount of interest that accrues on the loan each month. 

You Can Always Make Payments

If you have an undergraduate federal subsidized direct loan, the federal government will pay the interest that accrues on the loan while you’re still in school. However, you can still opt to make payments on the principal during school. 

The majority of loan agreements have different terms. Many private loans require you to start paying back the principal amount immediately.  However, subsidized loans aren’t due until you graduate. Students can easily defer payments for subsidized loans. Try not to delay this if you have the finance.

Moreover, if you can afford it, figure out your budget and check the amount that you can afford to pay. Even if the amount is small or even if you can’t afford to make the same payment as the previous month, go ahead and pay what you can as it all adds up in the end.

It can be scary when student loans are due, especially if you haven’t made any payments while you were in school. Taking appropriate action to help reduce that debt will help negate that feeling. Making small interest-only payments while in school will help you form a healthy habit of preparing yourself for repaying back your student loans. By being more organized and confident, you’ll be able to both prevent and reduce the stress in your life.

Build Your Credit Up

One of the major benefits of paying off your student loans while in school is that it helps you build your credit score. Building your credit will help you borrow money in the future as you’ll have a history of paying your loans back on time. This is also an easy way for most students to build up credit while they’re still in school as many don’t have a credit history. 

A student’s credit health can be maintained by making the payments on time, every time. This signifies a responsible borrower and indicates that you can repay a loan on time. It especially helps students if they want to apply for a credit card, car loan, or mortgage in the future. 

By developing this healthy habit early, you’ll get a head-start and build a healthy financial habit that’ll help you down the road. Borrowers with a track record of on-time payments, usually have a high credit score. This indicates that the borrower has solid debt-management practices and will be at a lower risk of default. This helps to ensure you get the lowest rates and best terms from the lenders.

Bottom Line

Deciding whether to pay back your student loans while in school, is an analysis that every student needs to do on their own.  By calculating the total amount of the student loan interest that’ll accrue during school, you’ll have the complete picture needed to make the right decision. Consider the benefits listed above and make sure to choose the option that suits you best.