Benefits of making student loan payments while in school
When you take out a student loan for university costs, some lenders postpone repayment until after you graduate, while others have borrowers begin monthly payments while in school.
Although putting off payments may sound appealing, there are several benefits of in-school loan payments. Even small payments can cut down on interest and prevent your balance from ballooning over the years you’re in school.
Here’s a closer look at the types of student loan payments you might make during school, along with the benefits of doing so.
What kind of student loan payments can I make while in school?
Every lender sets its own rules, so check with yours about what kind of payments you can (or have to) make while in school. Typically, you’ll have one or all of the following options:
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- Interest-only student loan payments: These payments cover the interest that accrues on your student loans. Let’s say, for example, that you borrow US$15,000 at a 10% interest rate. With this rate, your loans would accrue about US$4 in interest per day, so you’d be making interest-only payments of about US$125 per month.
- Partial monthly student loan payments: Some lenders ask you to make partial payments each month, often in the amount of US$25 monthly. While this amount may not be enough to cover accruing interest, it can cut down on the interest charges that are adding up on your loans.
- Full monthly student loan payments: Another option is full monthly payments right away. This means that you’ll be paying back both your interest charges and principal loan balance. For example, if you borrowed US$15,000 at a 10% rate, your full monthly payments would be about US$198 on a 10-year term.
Whatever terms you have and approach you take, you’ll usually make payments on a monthly basis from your bank account. Consider setting up auto payments so you don’t have to manually schedule payments each month while you’re busy writing papers and studying for exams. Using auto pay may also score you a discount on your interest rate, which could save you money on your student debt.
What are the benefits of making student loan payments while in school?
Although you might prefer to forget about your student debt for a few years, there are several benefits to making loan payments while in school.
Cut down on student loan interest charges
Student loans accrue interest all the time, so you could end up paying back substantially more than you borrowed in the first place. If you pay off some or all of the interest while you’re in school, however, you can seriously cut down on your overall borrowing costs.
You may also be able to prevent interest from capitalizing after you graduate, which can make your loans even more expensive. Interest capitalization happens when interest is added onto your principal balance, and it often occurs at the end of a no-payments-due grace period.
If you pay off the interest charges while you’re in school, though (rather than deferring payments completely), your principal balance won’t balloon. You’ll owe the same amount after you graduate as when you borrowed in the first place.
Speed up your student loan repayment timeline
Making payments while you’re in school can also get you out of debt faster. If you wait to make payments until after you graduate, you could end up paying your student loans for 10 years or longer. In fact, the average borrower takes over 20 years to pay back their education debt.
But starting payments earlier means you get a jump start on debt repayment. Let’s say during your freshman year you take out a student loan with a 10-year term. If you make full payments right away, you’ll be out of debt six years after you graduate. That’s four years sooner than if you waited to start paying until after you left school.
Even partial or interest-only payments can shave time off your repayment schedule. Plus, paying back your student loans faster can reduce the amount of interest you pay in the long run.
Build your credit history
Many students, and especially international students, don’t have much of a credit history yet. If your lender reports your in-school payments to the credit bureaus, though, you’ll start building a positive credit history through timely repayment.
Establishing your credit history can help you build a good credit score, which is based on factors like on-time payments on loans. Having a good credit history and score can make your postgraduation life a lot easier.
Having good credit can help you rent an apartment, buy a car, open a credit card, get a mortgage or take out a loan with reasonable rates. On the flip side, having bad or nonexistent credit can be a major obstacle in your adult life.
Protect your postgraduation finances
Making a dent in your student loan balance with in-school payments can protect your future finances. You’ll have less debt to deal with upon graduation, which could allow you to spend more time finding a job you love or using your income for other goals.
You won’t be unprepared for your student loan bills after graduation, since you’ll already have been dealing with them from the beginning.
Things to know about making student loan payments while in school
Although there are a number of financial benefits, how can you make payments on your student loan while you’re still in school? You’ll need to come up with a clear plan to cover your payments.
One step that can help is creating a budget or spending plan. Keep track of your monthly expenses, along with any earnings you have from a paid internship or part-time job. You may have to spend less in certain areas to save money for your student loan payments, but it’s possible.
Mark your payment due dates on your calendar and consider setting up automatic payments if they won’t overdraw your bank account. If your student loans have a variable rate, you also need to factor in potential fluctuations in your rate.
Variable rates can change due to market conditions, which can in turn affect your monthly payments. Revisit your budget on a regular basis to make any needed updates or readjust your spending plan.
How do MPOWER Financing in-school loan payments work?
If you take an MPOWER Financing student loan you’ll make interest-only payments while in school and for six months after graduation. After this period ends, you’ll start making full payments on your principal and interest charges.
With MPOWER, you won’t have to worry about variable rates making your loan more expensive. All of MPOWER’s loans come with fixed rates that stay the same over the life of your loan.
MPOWER also doesn’t require a cosigner or collateral and specializes in helping international students pay for school in the U.S. or Canada. You can borrow up to US$100,000 total to pay for tuition, fees and living costs in the U.S. or tuition in Canada.
How do I calculate my in-school student loan payment?
To see what your payments will be during and after school, check out MPOWER’s loan payment calculator. Along with the loan calculator, the Get a Loan page also shares information on MPOWER loans for international students pursuing a master’s degree. If you’re looking to study abroad in the U.S. or Canada, you can start a loan application to check your eligibility in under a minute.
