vishal

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hi guys,
i have applied for stafford loans and alternative loans which total for about $200k for 3 yrs.i like to know if i can save on paying interst on this amount if i start my payments right from the school or i should wait to graduate.the distribution of money would be like $65k yearly out of which $38,500 are stafford and rest $26,500 are alternative loans.i just dont want to pay insane interst of rate so would like to pay while i am in school so that pressure is less when i graduate.thanks a lot for your help in advance. :) </font><blockquote><font size="1" face="Verdana, Helvetica, sans-serif">quote:</font><hr /><font size="2" face="Verdana, Helvetica, sans-serif"> </font><hr /></blockquote><font size="2" face="Verdana, Helvetica, sans-serif">YOU HAVE TO BE THE CHANGE YOU EXPECT FROM THE WORLD.- MAHATMA GANDHI.
 

mpp

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It would depend on when the interest capitalizes. It makes sense to pay any interest prior to it being added to the principal amount (before the interest is compounded). For unsubsidized Stafford loans, the interest is capitalized when you complete the degree. In that case, you can make one lump sum of interest at the end of graduation and owe the same amount if you instead made payments towards the loan while you were in school that was equal to the lump sum payment. You would have to check with the individual lender regarding the alternative loans to see when the interest is capitalized. Making interest payment before capitilization (regardless of how long before) is always better than making payments after interest capitalization.

The best way to lower the amount you will owe is to borrow less. If you have enough money to make payments on the loans while you are in school, perhaps you would do better just to use that money for living expenses and borrow less money from the start.

The financial aid officer at your school should be able to offer you the best advice. Setup an appointment and discuss your situation carefully with them.
 
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vishal

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thanks a lot mpp for you advice.so that means for stafford unsubsidized loans if i dont pay the interst when i am in school it does not make a difference but have to pay before the grace period of 6 months ends after the graduation.i guess then only real worry is for the alternative loans which should be paid.
 

paean

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Some Stafford lender (I'm using THE at northstar.org for this reason and their rebates) will not capitilize until you enter repayment. If you qualify for an economic hardship deferment during residency for up to three years (many residents do) then it doesn't capitilize until the end of the three years.

Interest that capitalizes raises your principle. Borrowing more to pay interest as it accrues during school also raises you principle. The two often do so by THE SAME AMOUNT, except that private lenders charge points on money you borrow, but may not on interest that capitalizes. It rarely makes sense to pay interest if you have to borrow to do so. Because of points, it can cost you more. Better to really shop around for a private lender that has good terms, including interest, when it capitalizes, and points. Ask for help with your specific private loan from your FAO if you're not sure how the capitalization works.
 
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