Can I Pay Subsidized Loans While in School?
Learn if you can pay subsidized student loans while in school, how it works, and what to consider before making early payments.
Federal student loans are a common way for many individuals to finance higher education. Among various types, subsidized loans offer specific interest benefits. Many students wonder about managing these loans before formal repayment begins. This article explores whether making payments on subsidized loans while still enrolled in school is an option and its financial implications.
Understanding Subsidized Loan Interest
Subsidized loans have a distinct interest policy. The U.S. Department of Education pays the interest on these loans while a student is enrolled at least half-time. This benefit also extends through the grace period, which typically lasts six months after leaving school, and during any approved periods of deferment. Unlike unsubsidized loans, where interest accrues immediately, the principal balance of a subsidized loan does not grow due to interest during these times. This makes subsidized loans beneficial for students with demonstrated financial need.
Making Payments During School
Borrowers can make payments on their federal student loans, including subsidized ones, while still attending school. Payments are not required during enrollment for most federal loans, but proactively addressing the debt is an option. To make these payments, a borrower contacts their loan servicer directly. Payments can be submitted through online portals, via phone, or by mail.
Advantages of Early Payments
Even though the government covers interest on subsidized loans during in-school periods, making payments offers financial benefits. Any payments made during this time go directly towards reducing the loan’s principal balance. A lower principal means that when the subsidy ends and interest begins accruing, the total amount of interest charged will be less. This proactive approach can lead to lower monthly payments once repayment starts and reduces the overall cost of the loan over its lifetime.
Factors to Consider Before Paying
Before making early payments on subsidized student loans, evaluate your broader financial situation. Establishing an emergency fund, covering three to six months of living expenses, should be a priority. If other debts carry higher interest rates, such as credit card balances, prioritize their repayment before student loans. Directing funds towards higher-interest debt can save more money due to compounding interest. Also consider the opportunity cost of these payments, weighing them against other uses for funds, such as investing or saving for other financial goals.