I’m currently taking out Grad PLUS Direct Loans and Unsubsidized Direct Loans for grad school, and I noticed the interest is accruing daily while I’m still in school.
I’m new to student loans and trying to figure out the smartest approach long term. Would it make sense to start paying off some of the accrued interest now while I’m in school, even if it’s just small monthly payments? Or is it usually better to save cash and wait until repayment starts?
I may potentially use PSLF or an income-driven repayment plan in the future, so I’m also wondering if paying interest early changes anything strategically.
Would love to hear what others did and whether you regretted paying (or not paying) interest during school.
Should I pay accrued interest on Grad PLUS/Unsubsidized loans while still in grad school?
byu/Slight_Ad_4031 inStudentLoans
Posted by Slight_Ad_4031
4 Comments
Just borrow less and pay out of pocket for tuition/living expenses.
If you might potentially use PSLF, paying interest that would otherwise be forgiven is literally throwing away money. The only reason to ever pay anything before you have to is if you never expect any forgiveness whatsoever, and just want to get rid of the loan asap.
So I will go against the grain here and say there may be a few situations where paying some interest (or even principal) while still in school may make sense. I’ll give an example of my own student loan repayment.
I took out mostly unsubsidized direct loans for medical school, but did take out one grad plus loan for residency interviews. I ended up overestimating how much I’d need, and so at the end of that year I paid a chunk of that grad plus loan (including accrued interest) down with the money I had leftover.
My reasoning was this: the grad plus loan’s interest rate was a over 1% higher than my other loans and I knew that any unpaid interest would capitalize (as in, add to the loan’s principal) when I exited my post-graduate 6 month deferment period. I also knew that I was not going to pursue PSLF or any other type of forgiveness in the long term, though in the short term I did plan to enroll in REPAYE (what ended up becoming SAVE) and pay the minimum while I was making little money in residency.
I ended up graduating straight into COVID (and then SAVE) deferment, so my interest never ended up capitalizing. I used the deferment to pay down the accrued interest on all of my loans, so by the time the SAVE deferment ended, I didn’t have any interest capitalize.
I was glad I did pay down that extra bit of grad plus loan, because it saved me a good bit of accrued interest when I finally was able to start aggressively paying down my loans after residency.
I don’t think my plan would make any sense for someone who is pretty certain they’re going to pursue PSLF or loan forgiveness. It’s also a lot smarter to try to borrow as little money as possible in order to get through school rather than scramble to pay it down on the back end. But if you do accidentally take out too much like I did, and if there’s a good chance you’re going to try to pay off your loans aggressively at some point, I don’t think it’s a bad idea to funnel some of the leftovers into paying down the interest/principal on a high interest student loan.
If you also have another stream of income (gifts from family, income from a spouse, etc) and happen upon a surplus of money, I don’t think it’s silly to pay down the interest in order to avoid some of that capitalization event. Assuming you have enough cash laying around to already fund your emergency fund, that is.
Regardless of what you do right now, my recommendation is to avoid this situation in the future by taking less loans (i.e., you should not have extra cash laying around from your loans to pay on the loans you took out because you had no cash laying around).