Which Type of Loan Requires That You Pay the Interest Accumulated During College?

If you’re considering taking out a loan to help pay for college, you may be wondering which type of loan requires that you pay the interest accumulated during college. The answer may surprise you – it depends on the type of loan you take out! Read on to learn more about the different types of loans available and which one is right for you.

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Private Loans

Private loans are those that you take out from a bank or other financial institution. The interest on these loans begins to accrue (accumulate) as soon as you take out the loan.

Private Loans from Banks

Most banks that offer student loans will allow you to defer payments until after you graduate. This means that you won’t have to make any payments while you’re in school, and the interest that accrues on the loan will be added to the principal balance. You’ll start accruing interest from the day the loan is disbursed to you, so it’s important to stay on top of your payments once you enter repayment.

Some private lenders will offer an interest-only repayment option while you’re in school. With this type of repayment plan, you’ll only be required to pay the interest that accrues on your loan each month. The advantage of this type of repayment plan is that it can help keep your loan balance from growing too much while you’re in school. However, once you enter repayment, you’ll still be responsible for repaying the entire principal balance of your loan, plus all the accrued interest.

Private Loans from Credit Unions

Unlike other options, credit unions are nonprofits owned by their members. As a result, they sometimes offer lower interest rates and are worth considering as you compare your private loan options.

You may be able to get a lower interest rate on a private loan from a credit union if you or your co-signer has an existing relationship with the credit union. Some credit unions also offer CaptialOne No Hassle Loans which have no origination fees and no prepayment penalties.

Federal Loans

Federal student loans are financial aid that you borrow and must pay back with interest. If you don’t pay, your debt will increase and you may damage your credit score. The U.S. Department of Education’s Federal Student Aid office offers four types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Stafford Loans

There are two types of Stafford Loans available to students: subsidized and unsubsidized. The main difference between the two types of loans is that with a subsidized Stafford Loan, the federal government pays the interest that accrues on your loan while you’re in college. With an unsubsidized Stafford Loan, you are responsible for paying the interest that accrues on your loan while you’re in school and during any periods of deferment or forbearance.

Both subsidized and unsubsidized Stafford Loans have a fixed interest rate that is set by Congress each year. For loans first disbursed on or after July 1, 2020, and before July 1, 2021, the interest rate for both subsidized and unsubsidized Stafford Loans is 2.75%.

Perkins Loans

Perkins Loans are low-interest federal student loans for undergraduate and graduate students with exceptional financial need.

You are not required to pay the interest on your Perkins Loan while you are in school or during your grace period. If you qualify for a deferment, you may also be eligible to have your payments postponed or reduced. During certain periods of deferment, the federal government will even pay the interest on your behalf!

Parent PLUS Loans

The Parent PLUS Loan is a federal loan that is available to the parents of dependent undergraduate students. Parents can borrowing in order to help their children pay for college.

PLUS Loans have a fixed interest rate, and the entire loan plus any accrued interest is due and payable when the student graduates or drops below half-time enrollment.