Most student loan repayment advice focuses on what to do after graduation. But one of the most effective ways to reduce your total borrowing cost is to start paying while you are still in school. Even modest payments during your college years can make a meaningful difference over the life of your loans.
Why In-School Payments Matter
When you take out an unsubsidized federal student loan or a private student loan, interest begins accruing from the day the funds are disbursed, even though payments may not be required until after you graduate or leave school. If you do not make any payments during school, that interest capitalizes (gets added to your principal), and you start repayment owing more than you originally borrowed.
Here is a simplified example:
- You borrow $5,500 in an unsubsidized federal Direct Loan at 6.52%
- Over four years of school, approximately $1,434 in interest accrues
- If unpaid, that interest capitalizes, and you enter repayment with a balance of roughly $6,934
- If you paid the interest during school (about $30 per month), you would enter repayment owing the original $5,500
The difference may seem modest on one loan, but it compounds when you borrow across multiple years.
Types of In-School Payment Options
When comparing private student loan options, look at what payment choices are available during enrollment:
Interest-Only Payments
The most common in-school payment approach is paying only the interest that accrues each month. This can substantially reduce capitalization without requiring large payments, although a small amount of interest may still accrue between your last payment and the start of repayment and could be capitalized. For many students, monthly interest-only payments range from $25 to $75 per loan depending on the balance and rate.
Partial Interest Payments
If you have selected to fully defer your payments during the in-school period, paying even a portion of the accruing interest is better than paying nothing. Any amount you pay reduces the interest that will eventually capitalize.
Immediate Repayment Option
Some private lenders offer an immediate repayment option where you begin full monthly payments as soon as the loan is disbursed. This option often comes with a lower interest rate because the lender bears less risk. It is worth considering if you have the financial ability to handle payments during school.
Full Deferment
With full deferment, you make no payments while you’re in school, but interest continues to accrue on your loan throughout that period. When you graduate or leave school, that accumulated interest is capitalized, meaning it gets added to your principal balance. The result is that you’ll owe more than you originally borrowed when repayment begins.
How the Math Adds Up Over Four Years
Let’s look at how different in-school payment strategies affect a student borrowing $5,500 per year at 6.52% over four years of undergraduate education (total borrowed: $22,000):
- No in-school payments: Interest capitalizes, entering repayment at approximately $25,586. Over 10 years at 6.52%, total repaid is approximately $34,894
- Interest-only payments during school: After making a total of $3,586 in interest payments over the four years in school, you would enter repayment at $22,000. Total repaid over 10 years is approximately $30,004.
- Net savings from interest-only approach: Approximately $1,305 over the life of the loans
These figures are illustrative estimates based on simplified assumptions and assume that all accrued interest is paid as it accrues during school and that no additional interest remains unpaid at the start of repayment. Actual amounts will depend on your specific loan terms, disbursement dates, and interest rate. Always refer to your loan servicer for exact figures.
When In-School Payments May Not Be the Right Move
Paying on your loans during school is generally beneficial, but there are situations where it may not be your top priority:
- Subsidized federal loans: The government covers interest during enrollment, so there is no interest to pay.
- Financial hardship: If paying loan interest means you cannot cover essential expenses like food, housing, or required course materials, your immediate needs come first.
- Higher-interest debt: If you have credit card debt or other higher-rate obligations, those may be a better use of extra funds.
Getting Started
If you are considering in-school payments:
- Log in to your loan servicer’s portal (or studentaid.gov for federal loans) and check your current balance and accruing interest
- Estimate your monthly interest: Multiply your balance by your interest rate and divide by 12 to get an approximate monthly interest amount
- Set up a recurring payment: Even $25 per month makes a difference over four years
- Prioritize loans without interest subsidy first: Since subsidized loans do not accrue interest during school, focus your payments on unsubsidized federal loans and private loans that accrue interest during school.
Small Steps, Long-Term Impact
In-school repayment is not an all-or-nothing decision. Starting with even small, consistent payments while you are enrolled builds a habit and reduces the total cost of your education. Over a full four-year program, the cumulative effect of reducing interest capitalization can translate into meaningful savings.
Ready to explore your student loan options? Check out our credit union options and look for lenders that offer flexible in-school payment options.
