Hey everyone! This week I wanted to talk about a tip when it comes to Federal loans. First of all, everyone should know the difference between a Federal Subsidized and a Federal Unsubsidized loan. A Subsidized loan is a loan that the government pays the interest on while you’re in school; therefore, you won’t owe any money on that loan until you are in your repayment period (which is 6 months after you either graduate or cease half-time enrollment!). Unsubsidized loans, however, are a little different. In the case of Unsubsidized loans, the government does not pay the interest on these while you’re in school. That being said, you are not required to make any payments on the loans until you go into repayment; however, you should know that the interest will accumulate and increase the amount that you owe in the end.
As you all know, this past summer I decided to get ahead of the game a little and start making small payments towards my student loans. I have no regrets about getting ahead of the game and have made great progress so far with my payments. However, there is one thing I wish I had done differently throughout these past few years that would have helped me out right now. What I neglected to do in the past few years was make payments on the interest for my Unsubsidized loans. Because I never made payments on the interest before, the payments that I have made so far have all gone toward that accumulated interest. It will be just in the next month or two that I will actually be able to tackle the loan amount itself.
If you don’t pay the interest on the loan “as you go”, when you actually enter repayment, any interest that has accrued will capitalize onto the loan. Basically, the interest will be added to the amount that you originally borrowed and from that point forward you are really paying interest on that interest.
You aren’t required to make any interest payments while you are in school but if you can, it can really make a difference for you. You can contact your loan servicer for information on how to make these payments. Therefore, my advice to you is to start early and keep up with interest payments on those Unsubsidized loans. You’ll definitely thank yourself later!