Would you make payments on a student loan in this scenario?

[Frugal]

If it were in a no-interest period of deferment (granted from the gov't, since it is a subsidized Stafford loan)? What is your opinion? Did you make payments on your loan during periods of deferment when it was not required by the lender? Theoretically, this helps you pay down the principal much faster, and before it begins accruing interest again.

Would like to hear various thoughts on this. Thanks.

[dczech09]

You're going to have to pay it back at some point, right? So why not now? While the government subsidizes the interest, you can reduce the principle which will save you interest for when you become responsible for it. If you have the money to pay it down, then do it.

Some people may say that you should invest your money and let it grow, but you don't have very long before you will have to start paying the thing back (principle + interest). So get on top of it now and reduce the amount of time it takes to pay down.

[disneysteve]

I can tell you what I did.

I made the interest payments to keep the accrued interest from being capitalized (added to the principle) at the end of the deferment period.

I know a lot of people who did not do that. They just let the interest build up and get tacked on to the principle and they were sorry they went that route. Now, 21 years after graduating, I've been student debt free for about 4 years and I know others, including some who graduated before me, who are still paying on their loans.

So I'd say to pay as much as you can pay even while the loan is in deferral. You will appreciate it greatly later.

[MonkeyMama]

I'd pay them.

[Frugal]

Thanks everyone.

Disney Steve, I had a quick question for you...federally subsidized Stafford loans are always interest deferred during a period of unemployment deferment or economic hardship deferment, to my knowledge. Interest is not supposed to capitalize or be tacked on to the principal at all during or after the end of the deferment period. Did you perhaps have a different type of loan, or perhaps Staffords under a different type of deferment/forebearance?

It is my understanding that interest DOES capitalize on subsidized Staffords during forebearance, which is somewhat different than a regular deferment.

I agree, paying it off is best, but only if you have the money! I can only make small-tiny payments right now, but I do my best to pay it down aggressively.

Thanks again!

p.s. Do have some success stories...already paid off my Perkins loan in full last summer, that had higher interest. Also, paid off private school loan four years ago. So only loans remaining are the relatively "good" kind of subsidized Staffords, with lower interst rates. Always best to pay high rates off first.

[disneysteve]

Yes, the loans I was referring to were different and accrued interest during the period when no payments were due. To be fair,though, my parents did help out with those interest payments. Once the actual loan repayment started, though, I was on my own.

Had the loans not been accruing interest, honestly, I don't think I (or my parents) would have made any payments during that time.

[Hector]

Thanks everyone.

Disney Steve, I had a quick question for you...federally subsidized Stafford loans are always interest deferred during a period of unemployment deferment or economic hardship deferment, to my knowledge. Interest is not supposed to capitalize or be tacked on to the principal at all during or after the end of the deferment period. Did you perhaps have a different type of loan, or perhaps Staffords under a different type of deferment/forebearance?

It is my understanding that interest DOES capitalize on subsidized Staffords during forebearance, which is somewhat different than a regular deferment.

I agree, paying it off is best, but only if you have the money! I can only make small-tiny payments right now, but I do my best to pay it down aggressively.

Thanks again!

p.s. Do have some success stories...already paid off my Perkins loan in full last summer, that had higher interest. Also, paid off private school loan four years ago. So only loans remaining are the relatively "good" kind of subsidized Staffords, with lower interst rates. Always best to pay high rates off first.

When you say 'interest deferred' does that mean that they dont charge interest for that duration at all OR does that mean that interest was calculated for that period but will be differed for now and will be charged later on?

[Frugal]

Hector--

On the dl.ed.gov website, it will tell you that Subsidized Staffords do not accrue ANY interest during the period of unemployment deferment, specifically. In some cases it will, but not during this deferment. This is my current situation. However, I really hate to let the principal just sit there, and I try to make small payments on the principal whenever I am able to. I wish I could pay if off faster, but this is basically the best I can do right now, and many people in my situation. Probably the smartest thing to do - honestly- is NOT to pay them off when they are in deferment (as Disney Steve mentioned above), and let the money gain interest in your own account, then make a large lump-sum payment at the end of the period of deferment. I am one of those people that just plain hate to owe anything, and want to pay it all off right away! Even if it were a library fine (haven't had one in years- ha)! lol

If interest is deferred, it means it does not accrue - neither during the period of deferment, nor at the expiration of each six-month period of deferment.

I think this is generally true of most loans that go through a period of interest deferment for whatever specific reason; however, I am not an expert. You would have to check with the loan servicer on your individual loans, whether they are the federal gov't (as in my case), or a private lender like Sallie Mae.

Hope that helps.

[disneysteve]

I am one of those people that just plain hate to owe anything, and want to pay it all off right away!

I think that makes sense EXCEPT when there is no interest. Once my loans entered the repayment phase, I paid very aggressively. Even though the interest rate was low and I could have done better investing the extra money elsewhere, I hated having the loans so I prepaid them. As a result, I paid off loans with a 25-year repayment schedule in about 12 years. I'm doing the same thing now with our mortgage. Low rate (3.99%) and I could easily outperform that elsewhere but I'm prepaying because I want to be rid of it. We've been here 17 years this week and I want to be done with this loan. Right now, we're on track to have it gone in 5-6 years. What will probably happen is that once the balance gets low, like under 20K, I'll probably just make a few big payments and get rid of it entirely.