Why You Should Make Student Loan Payments During Your Grace Period

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When you graduate college (or drop to less than half-time status), you’re given a six-month grace period before you have to start repaying your loans. For many, it’s a godsend: You can hopefully find your financial footing before your first payment is due, lessening your money anxiety. But there’s a big reason you should make payments even during that six-month hiatus.


If you have unsubsidized federal loans, you begin accruing interest while you’re in school, meaning if you add on six additional months to start paying it off, you’ll owe significantly more than you do right when you graduated. And that happens because that interest is capitalized, which means it’s added to the principal of the loan. So you’ll pay interest on your interest. Capitalization also applies to private loans, though terms will vary by lender, so you’ll want to check to see how it applies to you.

The federal government covers interest for subsidized loans during school and during the grace period. (Note that if your loan goes into forbearance, you’re responsible for interest on both subsidized and unsubsidized loans.)

“Interest capitalization is a kind of worst-case scenario when it comes to student loans,” reports Student Loan Hero. “This can add years to your repayment period and cost you thousands of dollars over the lifetime of your loan.”

Edvisors, a private loan comparison platform, says deferring student loan repayments while the student is in school could increase the total cost by 10 to 20 percent of the original loan. And if you need to defer again for some reason, you’re digging yourself further and further into debt as the capitalized interest continues to accrue.

To avoid this interest-spiraling fate, you’d ideally make pay off at least the accrued interest during your grace period. Additionally, any small payment you can make while you’re in school or during the six months after will ultimately be beneficial to your bottom line, even if it’s a seemingly small sum.


That won’t be easy for everyone, but it will save you money in the long run. And as Student Loan Hero notes, if paying only the interest is burdensome, that’s an indication you should look into an income-based repayment plan so you’re not stretched too thin once your grace period is over.

Personal Finance Writer, Lifehacker


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Or just take your excess student loan refunds and periodically pay off all accrued interest while you’re still in school.