Paying Unsubsidized Loan interest while in school?

[the prodogy]

Is it a good idea to pay for your unsubsidized loan interest while you're in school still?

---

Members don't see this ad.

 

[randomusername]

Capitalization of the interest is not your friend:

http://www.staffordloan.com/stafford-loan-info/unsubsidized-student-loan.php

 

[Skippygonenuts]

Capitalization of the interest is not your friend:

http://www.staffordloan.com/stafford-loan-info/unsubsidized-student-loan.php

👍 great information!! thanks!

 

[tele turnin]

well if you can afford to do that, why not just take out less in loans?

 

[the prodogy]

well if you can afford to do that, why not just take out less in loans?

I was thinking the same thing too... I may have gotten a little bit more than I needed... not much more, maybe 2k at most, for the year, which I could use to pay for my interest. I'm trying to calculate in my head how much more my loans will be if I do not pay the interest.

Anyone wanna calculate it for me? 50k a year for 4 years? It would be greatly appreciated. How much less would I be paying if I paid off the interest vs if I don't pay off the interest

 

[MightyMoose]

I was thinking the same thing too... I may have gotten a little bit more than I needed... not much more, maybe 2k at most, for the year, which I could use to pay for my interest. I'm trying to calculate in my head how much more my loans will be if I do not pay the interest.

Anyone wanna calculate it for me? 50k a year for 4 years? It would be greatly appreciated. How much less would I be paying if I paid off the interest vs if I don't pay off the interest

Save it for a rainy day, or something you might need in the future. I wouldn't sweat the 2k and interest.

 

[DannyDeRosa]

why not try stripping for extra cash? I have met several upstanding young ladies who all attested to being at least pre-med and making cash in this manner.....as they took no less than 20 of my US dollars that I did not spend on interest payments.

 

[Antibodies]

I believe that interest is not capitalization onto the loan until you graduate. You are accumulating interest now, but you aren't paying interest on the interest until you graduate. So paying the interest now or the day before you graduate won't change anything.
That is what I remember reading about Stafford loans.

 

[Farmacist2011]

I believe that interest is not capitalization onto the loan until you graduate. You are accumulating interest now, but you aren't paying interest on the interest until you graduate. So paying the interest now or the day before you graduate won't change anything.
That is what I remember reading about Stafford loans.

Are you sure about that!? Can someone clarify!!!

 

[Sunny Side Up]

Not true...subsidized..no interest accrues...unsubsidized...interest accrues the entire time.

 

[aspirant11]

it is always ideal to pay of the interest (while in med school) each month for an unsubsidized loan.

If you can you can, if you can't you can't.

 

[jdsargen]

it is always ideal to pay of the interest (while in med school) each month for an unsubsidized loan.

If you can you can, if you can't you can't.

No...

If you have the money to pay the interest of the loan you can simply use that money for your other expenses and take less out in loans.

So there really is never a time when you should need to pay you loan interest while you are still taking loans out.

 

[Antibodies]

Not true...subsidized..no interest accrues...unsubsidized...interest accrues the entire time.

I didn't say that interest doesn't accumulate on the unsubsidized loan. I said that your interest doesn't accumulate on the past interest while you are in school.

Think of it as two accounts: One has the loan and one has the interest. While you are in school, 6.8% of interest is taken on the loan and that interest amount is added to the interest account. Once you graduate, the two amounts merge and then you get interest taken on the full amount (loan + interest). So while you are in school it doesn't matter when you pay the interest. (I am referring to the unsubsidized Stafford loan, private loans will work differently).

 

[aspirant11]

jdsargen.. are you saying that it isn't ideal (if you can) to pay off the interest on an unsub loan? Ever heard of compounding interest..

The OP asked if it is, "a good idea." I would say of course it is a good idea.
They don't HAVE to though.


Actually, there is a time when you should pay your interest off as you go.
For example, there are some students who borrow a larger amount of unsub loans b/c of previous debt from undergrad and grad

-if you have $ saved, and if you calculate the compounding interest on your principal after 4 years of med school, then it might be advantageous to pay off the interest as you go.

Just my opinion. Do what you wish. It becomes less of an issue if you're going into a high paying speciality..

 

[jdsargen]

jdsargen.. are you saying that it isn't ideal (if you can) to pay off the interest on an unsub loan? Ever heard of compounding interest..

The OP asked if it is, "a good idea." I would say of course it is a good idea.
They don't HAVE to though.


Actually, there is a time when you should pay your interest off as you go.
For example, there are some students who borrow a larger amount of unsub loans b/c of previous debt from undergrad and grad

-if you have $ saved, and if you calculate the compounding interest on your principal after 4 years of med school, then it might be advantageous to pay off the interest as you go.

Just my opinion. Do what you wish. It becomes less of an issue if you're going into a high paying speciality..

Interest compounding is irrelevant, here is an example.

Lets assume all unsubsidized loans for simplicity. The 8k that you can get subsidized will not really matter for these scenarios.

Case #1 - You borrow 50k each year with a 6.8% interest rate. You do not pay the interest each year. Here is what you have racked up over 4 years.

Year 1 - 53.4K --- 50K principal - 3.4K interest
Year 2 - 110.4K --- 100K principal - 10.4K interest
Year 3 - 171.3K --- 150K principal - 21.3K interest
Year 4 - 236.4K --- 200K principal - 36.4K interest

Case #2 - You borrow 50k each year with a 6.8% interest rate. You pay the interest each year. The money put forward to pay your interest has to come from somewhere, so to make the cases the same you have to borrow more than the 50K above.

Year 1 - 53.4K --- 50K principal + 3.4K to pay interest
Year 2 - 110.4K --- 100K principal + 10.4K to pay interest
Year 3 - 171.3K --- 150K principal + 21.3K to pay interest
Year 4 - 236.4K --- 200K principal + 36.4K to pay interest

The point that you seem to be forgetting is that the money to pay the interest has to come from somewhere. If you have a job or another source of income that you are paying the interest with you would not borrow as much money instead of trying to pay the interest.

IE, year 1 you would borrow 46.6K since you had 3.4K of income coming from somewhere else. Whether you pay the interest by borrowing more money or you do not pay the interest your total loan amount is still going to compound in the exact same fashion.

If someone else was paying the interest for you each year it is true that you would only owe 200K after 4 years but you would owe the same amount if you borrowed less and just took the money that the outside source was using for the interest and put it towards your tuition/expenses.



TLDR; If you have money saved just put it towards your expenses and borrow less.

 

[PhDtoDO]

It used to be that paying 2500 in student loan interest was a tax deduction. I think its higher now..maybe even 5000? If you don't need the deduction, I wouldn't worry about it. When you start paying back or have it in deferment during residency, I might consider just paying some of the interest.

During school though, I wouldn't bother. Most residency programs offer a financial advice packet and lectures etc. I'm going to reassess once I'm in residency.

Just a thought.

4th yr student...home stretch!

 

[kirbyross]

It makes plenty of sense to me to have between 2-3K More than what you have budgeted to live on bare bones while in school...and not borrow any more...

Then evaluate each year how you did; Borrow less if you had more than 2500 left (as an emergency fund).

I lived quite comfortably off of 22,000 on top of tuition...and I'm married with a child! It can be done, takes discipline, but because I didn't take out the full loans, I will have ended up saving over 80 K by the time my residency is done....
yea, that's right, 80 K difference from maxing my student loans and extra interest throughout residency.

Why does it always come down to money?