Most student loans have the option to defer repayments until after graduation. This can be a tempting choice for a student on a tight budget, but making even small monthly payments while in school can make a difference because it helps offset the interest that accrues.
Here's how making payments while enrolled in college and during the grace period can reduce your monthly payments and the total cost of your loan.
Imagine you take out a $10,000 undergraduate loan with the following terms:
- The private student loan has a fixed 6% interest rate.
- You graduate after 4 years, and the loan is deferred during your 45 months at school and for 6 months after graduation (your grace period). You don’t need to make payments during deferment, but interest still accrues.
- Once the grace period ends, a 180-month (15-year) repayment period begins.
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