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.
Most students don't have much credit history, so paying your student loans on time is an opportunity to build it while in school. Making payments on time, every time, is important to your credit health. It proves that you're a responsible borrower and that you're able to repay a loan.
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.
The goal is always to make your payments on time and in full. That is the best way to protect your credit and stay on track to pay off your loans. Payments go to fees, then interest, then principal. This is why extra payments can save you time and interest—if you instruct the servicer to apply them to the principal.
Despite what you may think, paying off your loans as soon as possible isn't always the best thing to do. Getting ahead of your debt is, in general, a smart move; however, if it comes at the cost of avoiding other debt, or overshadowing other benefits you may be receiving, it could set you back in the long run.
All education loans, including federal and private student loans, allow for penalty-free prepayment. This means you can make extra payments to reduce the balance of the loan, or even pay off the entire balance early, without having to pay an extra fee.
When do I have to pay back my loan? After you graduate, leave school, or drop below half-time enrollment, you will have a six-month grace period before you are required to begin repayment.
If you are awarded Federal Direct Subsidized or Unsubsidized loans, each loan must be accepted or declined. ALL of a Subsidized Loan must be accepted before accepting any portion of an Unsubsidized Loan.
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.
You'll also be eligible for student loan forgiveness on any remaining balance after the repayment period ends. This is usually after 20–25 years. Both direct subsidized and unsubsidized loans are eligible for any of the four IDR plans.
Unsubsidized loans have higher borrowing limits than subsidized loans. However, schools still set annual and total limits on borrowing based on federal government rules. Interest on unsubsidized student loans begins accruing as soon as the loan is disbursed, and you're responsible for paying it.
If you live on campus, your student loans can help cover living expenses up to your school's cost of attendance (COA). You can also use the funds to pay for living expenses off campus, including: Rent. Transportation (gas, parking fees, bus fare, etc.)
At a Glance
If you go back to school, you may have the option to defer your student loan payments with the lender's permission. Deferment temporarily stops payments, reduces the financial burden, and may prevent interest from growing on certain federal loans .
Direct Unsubsidized Loans: Also called unsubsidized Stafford Loans, these are undergraduate or graduate loans not based on a student's financial need. With unsubsidized loans, the government doesn't cover the interest while you're in school—meaning you'll need to pay the interest or your loan balance will grow.
In other words, the type of loan doesn't matter once the deferment period ends, but if you're a current student who is getting an early start on loan repayment, you'll want to start paying your unsubsidized loans as soon as possible so you can save yourself from paying large sums in interest down the road.
When you're offered a student aid package by the federal government, it may include federal subsidized and unsubsidized student loans. You can accept or decline these loans, or even accept a small portion of them. Consider declining if your sources of funding exceed your expenses.
There is no stipulation that requires the lending institution to send an unused amount of a loan back to the lender. After 120 days, a student can still send any leftover funds back but will likely end up paying some interest if it has accrued.
Depending on how your loan repayment plan is structured, you will likely have about a decade or two to make your loan payments. These payments begin following your graduation, after a six-month grace period.
Unlike that of subsidized loans, interest on unsubsidized loans starts accruing immediately upon disbursement and accrues even during deferments or grace periods, making this debt more expensive.
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.
Interest can make student loans more expensive, while inflation can make that debt harder to manage alongside other bills. Paying off some of your debt during your studies could ease the burden later on and save you money on interest.
Eventually, your student loans will be put into default and you may lose federal loan benefits, have your wages garnished, get barred from federal student aid among other consequences. Your loan holder may sue you, as well. If you ignore the court date or the court's orders — that could land you in jail.