Should You Pay Down Your Student Loans During College?

Penulis: mahsun sidiq

Should You Pay Down Your Student Loans During College?

Depending on the type of student loans you have, it might make sense to make payments while you’re still in school. Both federal and private student loans are typically deferred until after graduation, which means you’re not required to pay until then.

With federal loans, you’ll even get a six-month grace period after you leave school, and some private lenders also offer that benefit.

But if you have unsubsidized federal student loans or private student loans , interest starts accruing from the date of your student loan disbursement and also during the grace period.

Paying student loans while in school, even if it’s just to cover the interest, can lead to long-term savings, help build good financial habits early in your adult life and also help you pay off student loans early .

So if you’re wondering, should I be paying student loans while in school? And how can I pay off student loans while in college? Here’s what you need to know.

Benefits of Paying Off Student Loans While in School

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Paying off student loans while in school can have a lot of benefits for students, as well as for parents who are borrowing to help put a child through college. Here are just a few to consider.

Avoid Capitalized Interest

As interest accrues on your student loans, it has to be incorporated into your repayment schedule. The way lenders do this is by capitalizing the interest, or adding it to the principal balance of the loan once you’re ready to start making payments.

The problem with capitalized student loan interest is that it effectively makes it so that you end up paying interest on the interest that accrued during your time in college. Paying off interest on student loans while in school helps you avoid capitalized interest and can save you hundreds or even thousands of dollars as you pay off your student debt after graduation.

Keep in mind, though, that if you have subsidized federal student loans, any interest that accrues while you’re in school, during the grace period and during future periods of deferment is paid by the federal government. So you don’t have to worry about paying off interest on student loans while in school if you have those loans.

Pay Off Student Loans Faster

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Paying student loans while in school will ultimately make it easier to pay off student loans faster after you graduate. This is because your monthly payment will be lower without the capitalized interest, so you may have more room in your budget to make additional payments or even to refinance your loans with a shorter repayment term.

  • Save money on interest
  • Budget flexibility for other financial goals after graduation
  • Lower your debt-to-income ratio, making it easier to buy a house
  • Reduce your post-graduation financial stress
  • Improve your lifestyle after college

And remember, you don’t have to worry about prepayment penalties on student loans, so you can pay them off as quickly as you want.

You Can Deduct Student Loan Interest From Your Taxes

Paying off interest on student loans while in school can also benefit you at tax time. The U.S. tax code allows student loan borrowers who pay interest on qualified loans to deduct up to $2,500 in student loan interest payments each year when filing their taxes.

This student loan interest tax deduction applies when you pay the interest yourself, and the loan is in your name, and that rule applies to both students and parents.

The deduction helps reduce your adjusted gross income, which is not only used to calculate your taxable income but also to help determine which other tax breaks you’re eligible to receive.

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