November 12, 2021

When Does Interest Start Accruing on Student Loans?

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Most students don't consider how much debt they'll be carrying for decades after they graduate from college when they take out loans to pay for it. Even though borrowers are aware that student loan payback is around the corner, they often overlook the issue of when the interest will start to accrue.

This factor needs to be addressed to avoid taking on excessive debt and maintain financial stability after loan providers begin issuing bills. So, if you have a student loan or are considering getting one, keep reading! In this article, we'll be answering the question of when does interest start accruing on student loans.

When Does the Interest on a Student Loan Start To Accumulate?

With different types of loans, interest accrues at varying rates and times.

Your interest may begin accruing as soon as the money is disbursed. If you don't pay off your student loans while in school, interest will keep piling up.

Here are the different types of loans and their details:

  • Direct Unsubsidized Loans and Direct PLUS Loans are federally-funded student loans available to all undergraduate and graduate students, regardless of their financial situation. Both these types of loans will accrue interest upon release of the loan funds.
  • Private student loans also begin to rack up interest once funds are disbursed by the lender. These are loans provided by banks, credit unions, and other financial institutions to assist students with academic costs. In most cases, private lenders provide three or four repayment options, including an interest-only plan. With this option, only your loan's interest will be paid until the grace period expires. After which, you'll be required to pay back the loan's principal as well as interest.
  • For Direct Subsidized Loans, your accrued interest is covered by the federal government while you're in school and for a six-month grace period once you graduate. After the six-month grace period expires, you'll be required to repay the loan's principal and interest.

How You Could Save on Interest

Now that you know when your student loan interest will begin to accrue, here are some strategies that'll help you save money:

  • Starting payments early: The sooner you begin repaying your student loans, the better off your finances will be in the long run.
  • Make high-interest loans a priority: Gather your student loan details and sort them according to the interest rate. Loans with higher interest rates should receive most of your attention because they cost you the most money.
  • Consider refinancing: Refinancing private loans might help you secure lower interest rates while saving you money.

The Bottomline

It's crucial to understand how student loan interest accrues. The more you know about when interest on student loans starts accruing, the more prepared you’ll be for critical decisions like when to begin repaying loans. This can go a long way toward lowering your borrowing costs.

We've discussed when interest will start to accrue on several types of student loans in this article. We hope that this will help you better manage your loan payments.

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