You won't face any extra charges for starting your repayment before you graduate college. If you have not graduated, your Direct Subsidized Loans are not accruing interest. It's important to note that the federal government pays the interest for your Direct Subsidized loans while you're in college or in deferment.
If you choose to defer your loan payments until after graduation, it just means that you don't have to make payments while in school. But you're absolutely allowed to make payments if you're able. And that can help you save money on your total loan cost!
Paying Off Your Loan Early
You may prepay all or part of your federal student loan at any time without penalty. Any extra amount you pay in addition to your regular required monthly payment is applied to any outstanding interest before being applied to your outstanding principal balance.
Subsidized loans: Federal subsidized loans are based on financial need (as determined by the FAFSA®). In effect, the government will pay the interest for you while you're in school (if you're enrolled at least part-time), during your grace period, and if you need a loan deferment.
You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.
If you have a Direct Unsubsidized Loan, you have the option to pay interest while you are in school, or you can wait until you are no longer enrolled. Our office recommends that you pay the interest to minimize your loan debt.
Which Student Loans Should You Pay First: Subsidized or Unsubsidized? It's a good idea to start paying back unsubsidized student loans first, since you're more likely to have a higher balance that accrues interest much faster.
Cons: Lower lending limits.
For a second-year undergraduate student, the borrowing limit is $4,500; for third- and fourth-year students, the limit is $5,500. Con: Must establish financial need. Subsidized loans are only awarded to those who can clearly document financial need.
For all subsidized federal student loans, the U.S. Department of Education subsidizes—pays the interest on—your loan while you are in school and during periods of deferment, such as during military service. Subsidized loans are usually federal student loans.
The standard federal student loan repayment plan divides monthly payments over 10 years. However, borrowers have options. Borrowers with multiple federal student loans can consolidate loans and make payments over 10-30 years.
There is a 6 month grace period that starts the day after you graduate, leave school, or drop below half-time enrollment. You do not have to begin making payments until your grace period ends. More information regarding student loans, program requirements, and managing repayment can be found at StudentAid.gov.
You can return unused federal student loans within 120 days to avoid paying interest. However, if your unused student loans are private, you will probably have to pay interest. This is why, especially when taking out private loans, it's a good idea to calculate how much money you will need very carefully.
When your loan is disbursed, the lender pays the school directly. The college then applies your funds to its required academic expenses, such as tuition or dorm fees. Any leftover money is issued to you as a student loan refund. The additional funds may be sent to you via direct deposit, school debit account or check.
The average student loan debt amount is slightly over $30,000. However, many borrowers owe $50,000 or more in student loan debt. This isn't impossible to overcome using the right repayment methods.
1. Interest. When you take out student loans, you don't just repay the exact sum you borrowed. For example, if you take out $20,000 in student loans, you're generally going to end up spending well more than $20,000 by the time your student debt is paid off due to accrued interest.
Both Direct Subsidized Loans and Direct Unsubsidized Loans are offered to students regardless of their credit history and neither will result in a hard inquiry. A Direct PLUS Loan, however, does require a credit check, so if you're considering one, your credit scores may take a slight hit.
Both subsidized and unsubsidized loans have a loan fee, which is a percentage of the total loan amount that is subtracted from each disbursement you receive. It is your responsibility to pay back the full amount you borrowed, not just the amount you received less the loan fee.
Stafford Loan Limits
For example, a first-year dependent student can take out a total of $5,500 in Stafford loans. Subsidized loans can make up a maximum of $3,500 of this total. This means if you have the maximum $3,500 in a subsidized loan, you can borrow another $2,000 in an unsubsidized loan that year.
If you don't anticipate needing the amount of money offered to you through loans, you do not need to accept them. Schools will allow you to decline a loan, accept it, or even accept a portion of it.
Unsubsidized loans carry the same interest rate as subsidized loans for undergraduate borrowers, but they come with a hidden cost: You pay more of the interest. You can choose to pay the interest on an unsubsidized loan while you're in school.
Direct Subsidized Loans are available only to undergraduate students who have financial need. Direct Unsubsidized Loans are available to both undergraduates and graduate or professional degree students. You are not required to show financial need to receive a Direct Unsubsidized Loan.
Explore your federal options first
For most student borrowers, federal Direct loans are the better option. They almost always cost less and are easier to repay.
Given the option, you should accept a Direct Subsidized Loan first. Then, if you still need additional financial aid to pay for college or career school, accept the Direct Unsubsidized Loan.
Student loan debt can get in the way of other financial and lifestyle goals. The penalties for defaulting on some loan payments include added fees, added interest and wage garnishment.