Stafford Unsub. Loans Help

[Austin1]

I am very confused on this subject. I have never taken a student loan before. How does the payment of interest work on these loans? Do you pay the interest on them each month while in school? Or do can you also wait until graduation to pay the interest? Any insight is greatly appreciated.

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[LaurieB]

I am very confused on this subject. I have never taken a student loan before. How does the payment of interest work on these loans? Do you pay the interest on them each month while in school? Or do can you also wait until graduation to pay the interest? Any insight is greatly appreciated.

During school you only accrue interest on the principal of an unsubsidized Stafford loan (principal is the total amount of money you have borrrowed from unsubsidized stafford loans). So if you borrow $20K, you only pay interest on $20K. You don't pay interest on subsidized Stafford loans. Private loans have different terms and usually require that you pay interest on the principal plus any accrued interest. That means that if you borrow $20K one year, the next year you pay interest on $20K PLUS any interest accrued during the year. This is why unsubsidized Stafford loans are prefferable to private loans. And susidized Stafford loans are even better.

Now to answer your question, you can pay interest at any time, and most loans allow for you to wait untill the end of residency to pay anything since you won't make a substantial income until then. When you decide to pay off your loan/interest is mostly up to you. You can pay interest as you go to keep your cummulative loan down or you can wait until after residency to start payments. Some private loans penalize for early repayment, but unsubsidized loans don't have a penalty as far as I know. There is little incentive to pay off interest on unsubsidized loans while you are in school because you don't acrrue interest on your interest. The only reason to pay off unsubsidized loans off early is to minimize your total loan amount. This all assumes you have the money available to pay loans/interst off early.

Hope this helps!
Laurie