Should I Repay my Stafford Loans Early? | 08.06.10
For many recent graduates, the grace period before they must begin repaying their Stafford Loans won’t come to a close until the fall, most likely in November. But for the lucky few who have already secured a job and an income, there might be a temptation to start repayment a few months early. So should they do it?
First, you must know that early repayment will immediately end your grace period. So if your grace period is scheduled to end in November and you decide to make a payment now, you won’t be able to wait around until November to make another one. You will have begun the monthly repayment process and must pay the minimum amount owed toward your loan every 30 days.
While you should take that into consideration, the loss of your grace period is really the only apparent downside to early repayment. There are no fees or penalties if you decide to repay early and doing so will only benefit you in the long run. The sooner you start repayment, the shorter the life of the loan and the less interest you will ultimately owe.
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I have a question. I have 3 Subsidized Stafford student loans. #3 has a a fixed rate of 6.8% (2006),the other two are 2005 and 2004 and have variable rates, the 2004 has a 1.86% while the 2005 has a 2.36%. If I pay off the 2006 8.6% loan off first, will the variable rates of the other two loans go up? Are the other two rates so low because I have 3 loans? Meaning, did I get a “discount” in interest because I have a fixed rate and have 3 loans all together? They were all taken by the same lender. Thanks!
Varaible rate loans are based on a published index (such as LIBOR), plus a certain percentage based on your credit. The rate is not linked to any of your financials such as other debt. Some student loan lenders offer interest rate discounts for customers who have an established relationship, but the variable rate would not have anything to do with this. The current low interest rates are just based on the market. If you pay off your higher interest loan, this will not affect the rate on your others. For more information, visit http://www.privatestudentloans.com/interest-rates/
I was wondering if I wanted to would it be worth it to start paying a little money while I’m in school??
@Brooklyn- Yes, repaying your Federal loans while in school can really help alleviate your future burden and is a great option for those who can afford it. While there are typically no repercussions to repaying Federal loans early, you should contact your lender just to double-check. Same goes for private student loans as each individual lender has different conditions, always check with your lender before starting early payments.
Thanks for the great info! This is in regards to the subsidized Stafford loan I’ve just been qualified to receive (my first, actually): if I do start making payments while in school, will I be bound to making regular payments i.e. if say I pay a specific amount one month, and later I need that money will I be obligated to pay any amount in the following month or two? Would doing so (or vice versa ie paying a set amount regularly) have any negative or positive effects on your credit?
Also, when I do start making payments on this aforementioned subsidized Stafford loan, will there be interest accrued onto the account and will I be disqualified from a future grace period?
The Stafford loan offers many opportunities for me to pay my education-related costs, but while paying these assorted costs, I would like to build up a good credit history as well, so as to qualify me for other kinds of loans in the future (I don’t really have much of a history right now). So would you advise taking the loan for people who want to build up credit history as well as pay for their education costs in the interim?
@Jon- For federal loans, students should be able to pay off any amount they want while in school. This should not lock you into early repayment and you can pay whenever you want. Additionally, your Grace period will remain intact. I would advise you to contact the Department of Education’s Direct Loan Serving Center, just to double check that all of your federal loans can be paid this way and to have it on record for your account. Also, when you do begin repaying, make sure to clarify if you want to make interest only vs. principal payments, as it automatically comes from interest while in school.
As far as using loans to build credit is concerned, students should never take out more loans than they need for school. If you can pay for school without taking out loans, this is the best way to go. However, if you have to take out loans, building credit is a great benefit. You can also build credit by using (not abusing) a student credit card. For more on this, check out the StudentPlatinum Blog.
Can a payment be applied to an Unsubsidized loan before a Subsidized loan?
If you specify that the payment be applied to a certain account number (the unsubsidized loan), you should be able to. Generally though, payments are equally divided among all your federal loans.
I too have both subsidized and unsubsized loans that I want to pay on early. Is there a way to apply payments to unsubsidized first??
If you log into your Direct Loans account and find the exact loan account numbers for your unsubsidized loans, you can choose to overpay those loans each month and pay them down faster. However, each loan still has a minimum payment each month that you will need to meet irregardless.
my question: is the interest stil subsidized during the grace period? If so, I wil start paying down my un-subsidized loans first
Yes, no interest accrues on subsidized loans until the grace period ends.
i agree with denise
A better idea would be to put that amount into a savings account and save it up for a lump sum payment in November. You won't loose your grace period…in case you have a financial emergency, but you also put money away to start paying it down sooner.