When Do Student Loans Start Accruing Interest?

The basic answer to when student loans start accruing interest is right away. Whether you have to start paying that interest immediately depends upon whether it is a federal or private student loan, as each one’s interest rules can differ.

Interest on Federal Direct Student Loans and Parent PLUS Loans

Even though Federal Direct Student loans do not need to start to be paid back until six months after you leave college, interest starts to accrue on these loans as soon as you take them out. The interest starts to accrue at the interest rate in effect on the date when you take the loan. The interest rate changes every year as set by Congress for new loans that a student or parent takes out. If you have a subsidized federal loan, the federal government covers all the accrued interest costs. With federal student loans, you don’t need to pay the interest right away. You can defer interest payments along with your loan payments until six months after you leave school.

Interest on Private Student Loans

Each private loan servicer is different. So, you should reach out to them to determine their rules on how they handle interest. Typically, interest on private student loans starts to accrue, and you may be responsible for paying it, right away. Just as with federal student loans, many lenders, will allow you to defer interest payments, along with principal payments, until six months after you leave school.

If You Can, Pay the Interest While In School to Save Yourself Money in the Long Run

If you let the interest accrue, it will be added on to your loan amount. That means you will pay more over time in the future than if you paid the interest as soon as it started to accrue. This is called compounding. So, while you may have taken out a $5000 student loan, the loan amount will be quite a bit more than that when you leave school once you add the accrued interest on to the amount. As you accrue the interest, your loan amount keeps growing if you go the deferred route.

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