3 Benefits of Making Interest-Only Student Loan Payments

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Education loan for MBA
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3 Benefits of Making Interest-Only Student Loan
Payments
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• For many college students, borrowing student
  loans means theyll be paying back principal and
  interest.
• According to the College Board, in 2012-2013
  alone, more than 7 million students took out
  federal unsubsidized Stafford loans, a type of
  loan where the borrower is responsible for all
  accrued interest.
• Interest starts to accrue on unsubsidized
  Stafford loans from the time theyre first
  disbursed. At the end of the grace period, the
  six months between the time a student leaves
  school and the first payment, the accrued
  interest is capitalized.
• This means its added to the principal balance
  and interest then starts to accrue on the new,
  larger balance.

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• You will save money Lets say you attended a
  one-year vocational program and took out a
  federal unsubsidized Stafford loan for 5,000 at
  a 3.9 percent interest rate.
• According to the Cost of Interest Capitalization
  Calculator over at FinAid.org, if you deferred
  principal and interest for 18 months, which
  equals the time you were in school plus the
  six-month grace period, the new loan balance
  would be 5,300.72 with accrued interest.
• With the interest capitalization, under the
  standard 120-payment plan, after you got out of
  school you would pay 53.42 monthly, for a total
  payment of 6,410.40

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• If you instead opted to make interest-only
  payments while you were in school and during the
  grace period, youd pay 16.25 a month over 18
  months for a total of 292.50.
• Then, when your regular payments of principal and
  interest kicked in, your monthly payment would be
  50.39 for 10 years, for a total of 6,046.80.
• Combined with the 292 you already paid in
  interest, that means the total amount paid back
  would be approximately 6,339, or about 71 less
  than you would pay if you allowed the interest to
  capitalize.

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• You will develop good habits Often, borrowers
  fall behind in their student loan payments
  because they miss the first one due after their
  grace period ends.
• Delinquency can increase the amount you owe
  through late fees although most federal student
  loans currently dont charge late fees, federal
  regulations do authorize up to 6 cents for each
  dollar of each installment past 15 days late.
• Delinquency is also the first step toward
  default. However, if you align your interest-only
  payments with what will be your regular due date,
  youll get in the habit of parting with some
  money at that time.

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• In addition, youll already have a dedicated line
  in your budget for your student loan payments.
  Youll likely have to increase that amount once
  your payments actually come due, however you
  wont bust your budget with a student loan
  surprise.
• Youll know that amount is coming, and youll
  hopefully plan for it by increasing your payments
  or decreasing your other expenses in advance.
• As a bonus, you can also get a head start on
  automating your payments. Automatic debit is a
  great option for keeping your Education loan for
  MBA payments on track.

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• You will feel great If youre a student, you may
  feel like theres not a lot you can control in
  your life. You can stop your student loans from
  feeding into that.
• You can take control of your debt in many
  different ways, like choosing a repayment
  schedule that works for you. Making early
  payments and chipping away at that debt is
  another way to take charge of your money and feel
  like you can conquer everything the real world
  will throw at you after graduation.
• Source http//bit.ly/1sOc9FM

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