What if there was a way you could graduate from college with thousands of dollars less in student loan debt?
Given that the average student ends up with $33,310 in student loans and takes over a decade to pay those loans off, finding ways to reduce your total debt is always a welcome change.
This method may be simple, but it can make a huge impact -- start making your student loan payments while you’re still in school instead of waiting until after graduation.
Why you should get a head start on repaying your student loans
With most student loans, you’re not required to make any payments while you’re in school or for the first six months after you graduate, which is considered your loan’s grace period.
However, the lender can begin charging interest as soon as they disburse the loan. The exception is Direct Subsidized Loans, as the U.S. Department of Education pays the interest on those loans while the borrower is in school and during the grace period.
So even though you’re not required to make payments on your student loans when you’re in school, those loans are still accumulating interest every day. After four years or longer of getting your education, your loan balance will be much more than you originally borrowed.
By making any sort of payments towards your student loans while in school, you can reduce how much interest accumulates on them. As you’re about to see, this can make a serious difference in the total amount you end up paying for your student loans.
How much you can save by paying student loans ahead of time
Let’s say that you borrow a total of $20,000 in student loans with a 10-year term at a fixed interest rate of 5%. We’re using that interest rate because it’s about what you can expect with federal student loans for undergraduates and many of the best private student loan providers.
We’ll go with two payment options here: you pay nothing during four years of school or you pay your loan’s interest during school. This is the total you’ll pay for the loan with each method:
- Pay nothing during school -- $31,074.98 ($20,000 principal plus $11,074.98 in interest)
- Pay interest during school -- $25,367.26 ($20,000 principal plus $5,367.26 in interest)
By paying enough to cover the interest during school, you’d save $5,707.72 total over the life of your loan.
How to make your student loan payments
You can make your student loan payments through your loan servicer. With federal student loans, there are several different companies that could be your loan servicer, and you can find out which it is through your school’s financial aid office. With private student loans, the loan servicer is the lender that issued the loan.
Once you know your loan servicer, log in to your account on their website. From here, you can make manual payments or set up autopay.
Since there’s no required payment for students who are still in school, you can pay any amount that you want, whenever you want.
Remember that any amount you can spare will make your debt load after college more manageable. If you have a part-time job, maybe you could put $50 per month toward your student loans. If money is usually tight, then you could make a few payments during periods when you have extra income, such as during a work-study program or a summer job.
Deciding which loans to pay first
If you have multiple student loans, then it’s important to choose wisely regarding which loans you pay during school.
The only set-in-stone rule here is that you shouldn’t pay subsidized loans in school unless they’re all you have. Since you won’t be charged interest on those loans until six months after leaving school, you should prioritize your loans that start accumulating interest the moment they’re disbursed.
For the rest of your loans, there are a few different strategies to consider:
- Pay an equal amount towards each loan -- This is the simplest option and allows you to make similar progress with all your loans.
- Pay loans with higher interest rates first -- You’ll usually save the most money by concentrating on loans with higher interest rates.
- Pay private loans first -- Federal loans have some perks that private loans don’t. You may want to work on paying your private loans first so that your largest balances after school are on your federal loans, where you could apply for income-based repayment plans, deferment or forbearance, and possibly even loan forgiveness after enough qualifying payments.
Taking an early lead on student loan debt
Money can be tight when you’re a college student, and it’s natural that the last thing you’d want to do is add another expense to the mix.
Making student loan payments while in school isn’t something that you have to do, but you should consider paying what you can when you have the cash. Even a small amount here and there can help, and once you’re out of school, you’ll be glad you started paying when you did.