Do You Have to Pay on Student Loans While in School?

Whether student loan payments are required during enrollment is not always simple and depends on several factors, including the type of loan and the borrower’s enrollment status. This article aims to clarify the various scenarios related to student loan payments during periods of study.

Automatic Pause on Federal Loans

Many federal student loan borrowers benefit from an automatic pause on payments while they are enrolled in school. This is known as “in-school deferment.” For most federal student loans, payments are not required if a student is enrolled at least half-time in an eligible program. This deferment usually happens automatically. It allows them to postpone monthly payments until after they graduate, leave school, or drop below half-time enrollment.

Interest During In-School Periods

While payments may be paused, interest accrual during in-school deferment periods varies significantly depending on the type of federal loan. Federal Direct Subsidized Loans do not accrue interest while the borrower is enrolled at least half-time, during the grace period, or during deferment, as the government pays this interest. This means the loan balance does not increase during these periods.

Conversely, Federal Direct Unsubsidized Loans accrue interest from the moment they are disbursed, even during in-school deferment. The borrower is responsible for this interest. If this accrued interest is not paid, it will be added to the principal balance of the loan, a process known as interest capitalization, typically when the deferment ends. Capitalization increases the total amount owed, as future interest will be calculated on a larger principal balance.

For example, if a borrower has an unsubsidized loan of $10,000 with a 6.8% interest rate and defers payments for six months, approximately $340 in interest could accrue. If unpaid, this $340 would capitalize, increasing the principal to $10,340, and subsequent interest would be calculated on this new, higher amount. Understanding this distinction is important for managing the long-term cost of student loans.

Making Payments While Enrolled

Even when payments are not required due to in-school deferment, borrowers have the option to make voluntary payments. Making payments, even small ones, offers substantial financial benefits. One primary advantage is preventing interest capitalization, especially on unsubsidized loans. By paying the accruing interest, borrowers can ensure that their principal balance does not increase, thereby reducing the total cost of the loan over time.

Beyond covering interest, making payments towards the principal balance can further reduce the total amount paid and shorten the repayment period. This proactive approach can lead to significant savings on interest charges over the life of the loan. Borrowers can typically make these voluntary payments by contacting their loan servicer directly or by making online payments through their servicer’s portal.

Other Options for Pausing Payments

While federal loans often have automatic in-school deferment, private student loans typically do not. Borrowers with private loans should review their loan agreements carefully, as payment flexibility varies significantly among lenders. Some private lenders may offer limited deferment options, such as interest-only payments or a temporary pause, but these usually require an application and approval.

For federal loans, if a student is not enrolled at least half-time or faces other financial difficulties, various other deferment or forbearance options may be available. These include economic hardship deferment, unemployment deferment, or general forbearance. Unlike in-school deferment, these options generally require an application to the loan servicer and are not automatic. It is important to note that interest typically accrues on all loan types during forbearance, and on unsubsidized loans during other types of deferment.