The cost to send your student to college was never more expensive. For some families, federal and private education loans may be a way to make their dream come true. But borrowing money isn’t only a way to get ahead; it also presents a number of challenges, including choosing the right repayment and also private student loan pay off options.
You might not want to make payments on student loans until you are actually required. A small monthly payment could be enough to save your family a lot in interest payments.
Payment After the Grace Period
Let’s look at an example. Imagine your family taking out a $12,000 loan for the first year of college. The loan has a fixed rate of 6.6% APR for a term of 10 years. After graduation, if the student does not make any payments during the grace period (while the loan is in automatic deferment), the total loan cost will come to close to $21,031 including interest payments.
Some loans do not accrue interest while a student is fully-enrolled. Subsidized loans from the US Department of Education do not accrue interest until you have completed your grace period. If you are only enrolled half-time (as determined by your school), then the interest will stop. Unsubsidized loans, Parent PLUS loans, and most private student loans start accruing interest on the principal balance immediately, even though no payments are due. If you don’t know what you borrowed, you can contact your student loan provider, log in to your account on the US Department of Education’s website or contact your financial aid officer.
Important to note that not all student loans have the exact same six-month grace period. For example, some student loan borrowers are allowed to take out loans for nine months after they graduate before they have to begin making payments.
Making small payments while in school
What if your student sets aside $25 per month to pay the loan while they are in school? It might not seem like a lot, but this would reduce the amount you would have to pay on the loan by $20,561 over the loan period, which would save almost $470.
Students Loan Interest Payments While in School
Do you want to make a larger impact on the total loan repayment? The student and I can work out a plan together to pay off the monthly interest while they are still in school. It would cost $66 per monthly, but this would save your family $1241 and reduce the total amount of the loan to $19,790.
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Principal and interest payments while at school
Let’s say that you and your student agreed to make principal and interest payments. This would amount to $137 per month. This would reduce the total cost of the loan to $16,424.
You can save $4,607 over the life of your loan instead of making payments at the end.
|In-School Payments||Principal||Interest||Total Price|
|There are no In-School Payments||$12,000||$9,031||$21,031|
|$25 per Month||$12,000||$8,561||$20,561|
|Interest payments ($66 per month).||$12,000||$7,790||$19,790|
|Principal and Interest Payments ($137 Per Month)||$12,000||$4,424||$16,424|
Selecting a Student loan Repayment Plan for Your Family
Each family is different so you need to weigh the pros & cons of making payments while your child is in school. Is it possible to pay extra before the first payment? The student loan is often the most important financial decision that someone makes. Budgeting and being proactive can have a significant impact on a private student loan borrower’s pay off financial future.
To ensure you can pay off your loan balance before graduation, check with your loan agent before signing.
Maximize your financial assistance before borrowing
Before you make any decisions about how to repay or borrow student loans, you should have filled out the FAFSA (Free Application for Federal Student Aid) and looked into your grant and scholarship options. This is a great opportunity for students to explore other options than taking on student loans. Scholarships and aid are not loans. You don’t need to repay the interest.