When you’re in school as an undergraduate or graduate student, the lender could defer your student loans and, depending on your situation, you might want to consider taking advantage of that offering.
There are no in-school repayment plans for federal student loans, but you can prepay them with no penalty if you want to pay them off early. Most private student lenders offer the same payment deferral option, and they also allow you to make small fixed payments, interest-only payments, or even the full principal-and-interest payment.
With all these options, knowing what you need to pay while in school can be confusing. Here, we’ll share more details about when you need to pay student loans while in school, why you might want to make in-school payments, and when it’s better to take advantage of student loan payment deferral plans.
In this guide:
- Do you have to pay student loans while in school as an undergraduate?
- When you might have to make payments
- Do you have to pay student loans while in grad school?
- If you defer payments, when does repayment begin?
- What happens if you choose a repayment plan for repayment while in school?
- Should you defer your student loans while in school?
Do you have to pay student loans while in school as an undergraduate?
In most cases, you don’t have to pay your student loans while in school. Federal student loans require no in-school payments while in school; the same is true for most private student loans.
In most cases, interest still accrues and is added to your loan balance, a process referred to as capitalization. In the case of Direct Subsidized federal student loans, however, the government pays your interest while you are enrolled at least half time.
When your interest capitalizes, your loan balance grows, and you’re charged interest on the accrued interest.
Your student loan payments are often deferred while in school, but you can choose to make payments. Common in-school payment options include:
- Deferred payments: The option not to make payments while in school is called a payment deferral. This option to begin making payments later is common since many students don’t earn income while in school. It’s the federal student loan standard.
- Interest-only payments: To avoid your interest capitalizing, monthly interest payments are a wise option. This reduces your overall educational borrowing costs. Private lenders will often help you automate these payments.
- Fixed payment amount: If you can’t afford to pay all the interest each month or want to pay more than just the accrued interest, consider setting up a fixed payment amount with a private lender. For example, if your budget allows it, you could pay $25 a month during school.
- Principal and interest payments: Another option is to make full principal-and-interest payments on your loan. This will give you a head start on paying back your student loans and reduce the time you’ll spend paying after graduation. Many private lenders offer this option.
You have six months after graduating from college, leaving school, or dropping your enrollment below half-time to start paying on Direct Subsidized and Direct Unsubsidized federal student loans. The grace period is nine months if you get a Perkins Loan from the government.
Most private lenders offer the option to defer payments during school. Plus, you’ll often get a six-month grace period, with requirements similar to federal student loans.
Details about deferred payment options for several large private lenders are below.
| Private lender | Deferred payment while in school? | Grace period after leaving school |
| Sallie Mae | ✔ | 6 months |
| College Ave | ✔ | 6 months |
| SoFi | ✔ | 6 months |
| Discover | ✔ | 6 months |
Why borrowers might choose to pay interest on student loans while in school
In some cases, you may want to pay interest on your student loans to reduce the overall costs of your education. For most federal and private student loans, even if you defer payments, accrued, unpaid interest is added to your loan balance.
Only with Direct Subsidized Loans are you not responsible for paying the interest accrued while you’re enrolled in school at least half time, or during your grace period or deferral.
Paying interest on your student loans while in school is a way to reduce your overall borrowing costs. When interest accrues and capitalizes to your loan balance, interest will accrue on the entire balance, including the capitalized interest. So you’re paying interest on top of interest.
Here’s an example:
- Let’s say you have $5,500 in student loans with a fixed interest rate of 4.99%.
- Interest compounds—is added to your loan balance—monthly.
- If you don’t pay any interest during the year, at the end of the year, your loan balance will increase to $5,782 and the amount of interest the following year would be based on that new balance, rather than the $5,500.
By the end of four years of undergraduate study, if you don’t make any interest-only payments, your balance with interest will have capitalized to about $6,373, whereas, if you made an interest-only payment of about $23 each month to start, you could avoid increasing your loan amount.
A private lender may require you to make payments during school, as in this example, but in-school payments are almost always optional.
When you might have to make payments even if you didn’t choose an in-school repayment plan
The most common example of when you might need to start making payments while you’re still in school is if your enrollment drops below half-time. This could happen if you decide to take fewer classes for a semester, need a short break, or even transfer to a new school.
Most student loans—federal and private—have a trigger that starts the repayment clock as soon as one of the following occurs:
- You graduate
- You leave school
- Your enrollment drops below half-time
Once the clock starts ticking, you’ll often have a six-month grace period before you must start repaying the loan.
This grace period is designed to give you time to restart school, get a job so you can make the payments, transfer schools, or work out an alternative. In the case of a hardship, such as a medical issue, your lender may defer your payments for even longer.
Besides student loans for undergraduate programs, you can also defer payments while attending graduate school.
Do you have to pay student loans while in grad school?
If you go to graduate school, the payments on your current federal student loans are automatically deferred as long as you’re enrolled at least half-time.
Most private lenders will defer your student loan payments while you’re in graduate school, but their policies may vary.
Reach out to your private lender to understand the specific policies before enrolling in school. This way, if your private lender expects you to continue to make payments, you can figure out how to handle the situation.
If you defer payments, when does repayment begin?
If the payments on your student loans are deferred because you’re going to school, in most cases, you must begin making payments six months after you graduate, leave school, or enroll less than half-time.
These repayment criteria usually apply to undergraduate and graduate programs and to most federal and private student loans.
Remember: Each private lender sets its student loan policy. So even if a practice is typical for other lenders (e.g., a six-month grace period), some lenders’ policies differ. Check with your lender to ensure you know what’s required.
What happens if you choose a repayment plan that calls for repayment while in school?
If you opt for a repayment plan with a private lender that calls for in-school payments, you’ll need to start making payments per the agreement. Your lender will tell you when your payments begin, such as one to two months after your loan’s funding date.
Federal student loans don’t have in-school repayment plans. However, you won’t pay fees or penalties to pay them off early, so you always have the option to make payments during school. You can repay most private student loans early with no fee, too.
The primary benefit of repaying your loans while in school is the opportunity to avoid accruing interest that adds to your loan balance.
Should you defer your student loans while in school?
In many cases, deferring your student loans is wise. For example, many students can’t afford in-school loan payments. You may not have a job while in school or be confident you’ll get a higher-paying job to repay your loans once you graduate.
Another reason to defer your student loans while in school is to take advantage of federal loan forgiveness programs. You can pay your federal student loans in school and during grace periods, but these payments won’t count toward loan forgiveness programs.
If you plan to apply for federal student loan forgiveness, ensure you understand the criteria. Sometimes, you may save money by deferring your student loan payments while in school.
However, if you don’t plan to apply for loan forgiveness and are earning enough income to make your payments, you might consider making them early. The sooner you repay your student loans, the less interest you’ll pay, and the lower your overall borrowing costs will be.