How to Make Student Loan Payments While in School (And Why)
Smart strategies to reduce your total debt burden by making strategic payments during college.
Why Make Payments While in School?
Key Benefits:
- Prevent Interest Capitalization: Stop unpaid interest from being added to principal
- Lower Total Debt: Reduce the amount you'll owe after graduation
- Build Good Habits: Start managing debt responsibly early
- Credit History: Begin building positive payment history
Interest Capitalization Warning:
When you enter repayment, unpaid interest gets added to your principal balance. This means you'll pay interest on interest!
Example: $1,000 unpaid interest + $10,000 principal = $11,000 new principal balance
Smart Payment Strategies
Interest-Only Payments
Pay just the monthly interest to prevent capitalization
Pros:
- • Lowest payment amount
- • Prevents debt growth
- • Manageable for most students
Cons:
- • Principal doesn't decrease
- • Still substantial total interest
Best for: Students with tight budgets who want to prevent debt growth
Partial Principal Payments
Pay interest plus small amount toward principal
Pros:
- • Reduces total debt
- • Builds payment discipline
- • Significant long-term savings
Cons:
- • Higher monthly payments
- • May strain student budget
Best for: Students with part-time income or family support
Target High-Interest Loans
Focus payments on highest interest rate loans first
Pros:
- • Maximum interest savings
- • Strategic debt reduction
- • Lower total cost
Cons:
- • Requires loan tracking
- • More complex management
Best for: Students with multiple loans at different rates
How to Calculate Your Payment
Step-by-Step Calculation:
Step 1: Find Your Interest Rate
Check your loan servicer website for current interest rates on each loan
Step 2: Calculate Monthly Interest
Principal Balance × (Annual Rate ÷ 12) = Monthly Interest
Example: $10,000 × (5% ÷ 12) = $41.67/month
Step 3: Set Your Payment Goal
- • Interest-only: Pay the monthly interest amount
- • Principal reduction: Add $25-100+ to interest payment
- • Aggressive: Pay what you can afford beyond interest
Frequently Asked Questions
Should I pay subsidized or unsubsidized loans first?
Focus on unsubsidized loans first since they accrue interest while you're in school. Subsidized loans don't charge interest during enrollment.
What if I can't afford the full interest payment?
Pay what you can! Even partial payments reduce the amount that will capitalize. Every dollar helps reduce your future debt burden.
Can I make payments if I'm still borrowing new loans?
Yes! You can make payments on existing loans while taking new ones. Focus on loans that are already accruing interest.
Should I use work-study money for loan payments?
Consider your priorities: emergency fund first, then loan payments. Work-study income is often modest, so use it strategically.
Take Control of Your Student Debt
Even small payments during school can save thousands in total interest. Start with what you can afford and build the habit.