I have seen mentioned on here comments about paying student loan interest while in school so I have a couple of questions.
- How much could I save by doing this? I don’t really understand how the interest compounds. If I pay it right away (interest) in the first year, then I would only owe principal? How does this work?
- How do I do it? No bill or anything comes.
- Is this a significant savings?
I ask because I was just unexpectedly given $6000 by a relative for school expenses, and I’m wondering if it’s better to do this or not take a Stafford loan for one year instead.
The interest doesn’t compound it is simple interest (until you combine all the loans into one loan when you graduate or leave school). If the loans are subsidized, the govt will pay the interest as it accrues.
You can get the name of your loan servicer and make interest payments any time you want to. It is usually not that much every month, $20 or so on the $5500 a freshman can take out (depending on whether you have subsidized or unsubsidized loans).
It is definitely better to not borrow more if you have $6000. There is an origination fee on the student loans, and although it is small (1%) that’s still $60 you save by not borrowing $6000.