Understanding Student Loans
Student loans help finance higher education but can become a significant financial burden after graduation. Understanding how your loans work, including grace periods and interest accrual, is crucial for effective repayment planning.
This calculator helps you understand the true cost of your student loans, including interest that accrues during the grace period. Use it to compare different repayment strategies and find the most affordable path to becoming debt-free.
Types of Student Loans
- •Direct Subsidized Loans: Government pays interest while you're in school and during grace period. Based on financial need.
- •Direct Unsubsidized Loans: Interest accrues from disbursement. Not based on financial need.
- •PLUS Loans: For graduate students and parents. Higher interest rates and fees.
- •Private Student Loans: From banks and credit unions. Terms and rates vary widely.
The Impact of Grace Period Interest
During your grace period, interest continues to accrue on unsubsidized loans. When repayment begins, this accrued interest is capitalized (added to your principal balance), which means you'll pay interest on the interest.
Subsidized Loans
The government covers interest during the grace period. Your loan balance stays the same until repayment begins.
Unsubsidized Loans
Interest accrues during grace period and gets added to your balance. This increases your total debt and monthly payments.
Making interest-only payments during your grace period can prevent capitalization and save you money over the life of the loan.
Student Loan Repayment Strategies
Avalanche Method
Pay minimums on all loans, then put extra money toward the loan with the highest interest rate. Saves the most money on interest.
Snowball Method
Pay off smallest balances first for psychological wins. Less efficient financially but can provide motivation to continue.
Income-Driven Plans
Federal programs that cap payments at a percentage of discretionary income. May qualify for forgiveness after 20-25 years.
Refinancing
Get a lower interest rate from a private lender. Good credit required. Loses federal loan protections.
Loan Consolidation
Combine multiple federal loans into one. Simplifies payments but may lose some benefits like interest rate discounts.
Employer Assistance
Some employers offer student loan repayment assistance as a benefit. Up to $5,250 per year can be tax-free.