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Making Loan Payments While Your Student is in School: How Much Could Your Family Save?

By Scarlett Li, Analytics and Risk Lead at Earnest

The cost of sending your student to college has never been more expensive. Loans can help make that dream a reality for some families, but the idea of making payments towards student loans before you are required might be the last thing you want to do. However, making even a small monthly payment while your student is in school could save your family big in interest payments.

Paying After the Grace Period

Let’s use an example. Say your family decided to take out a $12,000 loan to help cover the cost of your student’s first year of college. The loan has an interest rate of 6.6% APR and a term of 10 years. If no payments are made until the end of the loan’s grace period after graduation, several years later, the total cost of the loan will end up being closer to $21,031 after interest payments.  

Making Small Payments While In School

What if your student were to set aside $25 per month to make loan payments while in school? This might not seem like much, but the total cost of the loan would go down to $20,561, saving almost $470 vs making no payments while in school.

Covering Interest Payments While In School

Looking to make a bigger dent in that total loan cost? You and your student could make a plan to pay back the interest on the loan each month while they are in school. In this example, that’s $66 per month, but it would save your family $1,241 and reduce the total cost of the loan to $19,790.  

Principal and Interest Payments While In School

Finally, what if you and your student made principal and interest payments while in school? For this loan, it would equate to approximately $137 per month. This would bring the total cost of the loan down to $16,424.

That’s $4,607 in savings over the life of the loan vs not making any payments before the end of the grace period!

In-School Payments Principal Interest Total Cost
No In-School Payments $12,000 $9,031 $21,031
$25 a Month $12,000 $8,561 $20,561
Interest Payments ($66 a month) $12,000 $7,790 $19,790
Principal and Interest Payments ($137 a month) $12,000 $4,424 $16,424

Read more: How to Decide If You Can Afford To Help Pay for School  

Picking a Payment Strategy for Your Family

Each family is different, and needs to weigh the pros and cons of making payments while in school. Taking out a student loan is often the first major financial decision someone makes. Being proactive and budgeting for that debt can be a major influence in their future financial habits.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.