Managing student loans during college isn't something that college students—or their parents—tend to think about. In fact, it's likely that college students don't plan to address their loans until after graduation. If they think about it at all, they may focus on the six-month grace period after graduation (or leaving college, if they don't graduate) before students have to start paying back their loans.

That's a big mistake. If you're borrowing money for college, you'll likely accumulate multiple student loans as you earn your degree. You might have one federal loan for each year you're in school, plus private loans to cover what federal loans don't.

How you manage these loans while you're still in school can determine whether you experience your own personal student loan crisis after graduation—or you stride into adult life with your loans under control and a plan to quickly repay the balance.

That's why we're sharing this information about how to manage your student debt during college—and how much you could save by addressing your debt well before graduation.

Key Takeaways

  • Unless you only have subsidized federal student loans, your balance will start accruing interest as soon as you receive the funds.
  • Calculating how much interest your student loans will accrue can help you decide whether to make interest payments during school.
  • The six-month grace period most loans provide after graduation can add substantially to your loan balance.

Overborrowing: Just Say No

Believe it or not, lenders may offer you more money than you really need to pay for school. Yes, they're increasing their risk of not getting paid back by allowing you to potentially overextend yourself. But they're also increasing their potential profits by having you pay them more interest.

Student loans are so hard to discharge in bankruptcy and can be collected in so many ways (like withholding your tax refund and garnishing your wages) that you should assume lenders are not looking out for your best interests. It's your job to figure out the smallest amount you need to borrow to earn your degree.

"You always have the option to turn down additional loans or even reduce the amount for which you are approved," said Josh Simpson, an investment advisor representative with Lake Advisory Group in Lady Lake, Fla. The strategy of only borrowing what you need might seem obvious, he said, but it is often overlooked.

Student Loan Interest: Does It Accumulate During School?

First, you'll want to figure out whether your student loans accrue interest while you're in school, or if interest doesn't accrue until after graduation. This depends on the type of loan(s) you have.

Will Your Student Loan Accumulate Interest During School?
Loan type Subsidized federal
direct loan
Unsubsidized federal direct loan Private loan
Interest accumulation during school? No, as long as you're enrolled at least half time Yes Yes

Table created by author using the Federal Student Aid Office's "Subsidized and Unsubsidized Loans."

Next, you'll want to figure out how much interest your loans will accumulate while you're in school. Otherwise, you could be shocked when you're first required to make payments after graduation and you see how much more you already owe compared to what you borrowed.

Use a student loan deferment calculator to do the math. Deferment is what it's called when your student loans are accumulating interest but you aren't required to make payments.

Unsubsidized Federal Direct Student Loans: Interest Accumulation During School
Loan year Principal borrowed (federal maximum) Interest rate
(set by govt.)
Years (months) of school remaining Total interest accumulated during school Total interest with 6-month post-school grace period
Freshman year, 2016–17 $5,500 3.76% 4 (48) $827 $930
Sophomore year, 2017–18 $6,500 4.45% 3 (36) $867 $1,012
Junior year, 2018–19 $7,500 5.05% 2 (24) $757 $947
Senior year, 2019–20 $7,500 4.53% 1 (12) $339 $509
Total principal $27,000        
Total interest       $2,790 $3,398
Grand total (principal plus interest)       $29,790 $30,398

Table created by the author with interest rates from the Federal Student Aid Office, "Subsidized and Unsubsidized Loans."

You can do the math for your own loans by looking up the federal student loan limits and current and past interest rates at the Federal Student Aid website. We performed our calculations using Student Loan Hero's Student Loan Deferment Calculator.

Federal student loan fees

When you are approved for a direct federal loan, you may be surprised to learn that you won't actually receive the full amount. The reason is that you must pay a loan fee of a little more than 1%, and that fee is taken out of your loan principal. However, you'll still pay interest on the full principal even though you'll actually only receive about 99% of it.

On a $7,500 loan, for example, a 1.059% loan fee would subtract $79, meaning you'd only receive $7,421. But you'll still be paying interest on $7,500.

Student loan grace period

After you drop below half-time enrollment for any reason (graduation is the happiest reason this happens), your student loans will enter the repayment period. But you'll often get a six-month grace period during which things will continue as they did during school: Interest will accumulate, but you won't have to make payments yet.

Student loans often have a six-month grace period after you leave school during which interest continues to accumulate but you don't have to make payments.

Paying Student Loan Interest During College: Is It Worth It?

Is it really such a big deal if you accumulate $2,790 or even $3,398 in student loan interest during school? That's a personal question that only you can answer. But here are some factors to consider if you are thinking about starting to pay during school vs. starting to pay after graduation:

In-school considerations:

  • Calculate how much you will need to earn per month to pay your student loan interest. How many hours will it take you to earn that money? Make sure to factor in commute time and FICA taxes.
  • Perhaps your parents would be willing to pay your student loan interest while you're in school. Could you sweeten the deal by asking them to pay it as long as you maintain a certain GPA?
  • If your classes and studies are all-consuming, focusing on academics may be more valuable than paying down interest.
  • If you're taking extra classes to graduate early, you're already looking at a semester or a year of savings on tuition and fees. If working to pay interest during school will keep you from meeting that goal, it's definitely not worth it. That said, this writer held multiple jobs throughout college and graduated in three years by attending summer school, so it's definitely possible.

Post-graduation considerations:

  • If your first job out of school is likely to pay handsomely, the accumulated interest may be so easy to knock out post-graduation that it's not worth worrying about during school.
  • If you're a liberal arts major with no clear career path, minimizing your borrowing costs might be a priority.
  • Working during school can have benefits beyond allowing you to repay student loan interest. You might build your resume, make friends, network, learn new skills, and improve your time-management skills.

How Private Student Loans Change the Interest Payment Picture

Let's say the federal student loan limits don't fully cover your tuition and fee shortfall after grants, scholarships, and parental contributions. What does the math look like with larger loan amounts and private loan interest rates?

We'll assume you'll need to borrow $15,000 per year and you'll max out your federal loans. That leaves $7,500 to $9,500 per year in private loans.

Private Student Loan Interest Accumulation During School
Loan year Principal borrowed Interest rate Years (months)
of school remaining
Total interest accumulated during school Total interest with  6-month post-school grace period
Freshman year, 2016–17 $9,500 9.0% 4 (48) $3,422 $3,848
Sophomore year, 2017–18 $8,500 9.0% 3 (36) $2,295 $2,678
Junior year, 2018–19 $7,500 9.0% 2 (24) $1,350 $1,688
Senior year, 2019–20 $7,500 9.0% 1 (12) $675 $1,011
Total principal $33,000        
Total interest       $7,742 $9,225
Grand total: (principal plus interest)       $40,742 $42,225

Table created by the author with the help of calculations from Student Loan Hero's "Student Loan Deferment Calculator."

Private student loan interest rates depend on many factors: your credit history, your cosigner's credit history (if you have a cosigner), market interest rates, and the lender's offerings. You'll also have the option of a fixed- or variable-rate loan; variable-loan rates often start out lower than fixed rates, but can escalate over time.

For simplicity, we chose a 9.0% fixed interest rate for our private student loan example in the table above. Private lenders are not required to offer a grace period, but many do, so we showed that option as well.

The more you borrow and the higher the interest rate, the more you stand to gain by paying interest during school. And it doesn't have to be an all-or-nothing deal. Paying some interest will do you more good than paying no interest.

If you're able to pay the interest, have some spending money to do fun things with friends, and still have money left over, you might even consider paying down your student loan principal during school.

The Bottom Line

By calculating how much student loan interest you will accrue during school, you'll have the information you need to make an important decision: Should I make student loan interest payments during college? There's no right answer; it's an analysis every student, perhaps with some help from their parents, needs to perform for themselves.

Through doing the analysis, making the choice, and understanding your borrowing circumstances, you'll be well prepared to pay off your remaining debt after graduation. And you won't be hit with any unwelcome surprises.