Why You Might Want to Start Paying Your Student Loans in College

When I was 26 years old, I paid off my student loans just three years after graduation. People congratulated me on my task and couldn’t believe how quickly I’d done it, especially since I was only making $30,000 a year. 

But I wasn’t that impressed. I knew how much money I had wasted in college, eating out, buying new clothes.  

When I was in college, I didn’t budget or think much about my student loans. I knew I had “only” taken out $24,000 and wasn’t concerned about paying it back. 

If you ask me what one of my biggest financial regrets is, it’s not paying money on my student loans in college.   

Save on Interest 

The biggest reason to start paying off your student loans while in college is to save on interest.  

There are two types of federal student loans: subsidized and unsubsidized. If you have subsidized student loans, you don’t start accruing interest until you graduate. If you have unsubsidized federal loans, the interest accrues while you’re in school and capitalizes or becomes part of the principal.  

Because the interest grows, the amount you originally borrowed can balloon while you’re out partying and skipping classes. Each dollar you repay in college is one less dollar you have to pay after graduation.  

Private lenders may also charge interest while you’re in school, but their policy may vary. You should contact your lenders to see if they do. 

Get in the Habit of Paying 

Even if you only pay $25 a month toward your student loans, starting to make payments will teach you the habit of paying your bills. Personal finance isn’t an innate skill; it’s a series of successful habits. 

If you start paying your student loans while in college, you’ll learn how to manage your money, how much a dollar is worth and how to balance bills with other priorities. You may start to become more motivated to be frugal, live on a budget and focus on early debt payoff.  

It’s much harder to start a habit from scratch than it is to continue one. Even if you slip up and stop making payments for a few months, you’ll still have the experience of doing it. Getting back on the horse will be a lot easier.   

Give Yourself a Head Start 

When you pay your student loans early, you can have the payments applied to the principal or have them count as future payments. If you choose the latter, it will push your next due date. When I was paying extra on my student loans, my soonest due date would sometimes be more than six months away.  

That means that if you find yourself struggling financially, you can take a break from paying your student loans without deferring your student loans or applying for forbearance.  

When You Shouldn’t Pay off Student Loans in College 

There are a few situations when you shouldn’t start repaying your student loans in college. If you have high-interest debt, like a credit card balance or personal loan, you should focus on repaying that before your student loans. 

Look at your other loans and compare their interest rates to your student loan interest rate. If the rate is higher, then focus on putting extra money toward that debt.  

If your savings is below $1,000, you should also focus on building that up instead of repaying your student loans. A basic emergency or rainy day fund is essential because it helps pay for emergencies like a trip to the ER, a visit to the vet, or replacing a flat tire.   

It may be tempting to start paying your student loans, but you really need an emergency fund first. If you have a true emergency, like your car needs a new alternator, you may either go without or resort to putting that money on a credit card. This means you’ll owe interest if you can’t pay that bill in full.  

Be patient and focus on the basic building blocks. Once you have $1,000 in your emergency fund, you can start paying your student loans.  

How to Start Paying off Your Student Loans in College 

First, contact your student loan provider. You may need to create an online account, which can require some official documents and identity verification. The process may vary depending if you’re applying for a federal or private loan. 

If you’re not sure who you owe money to, look at your official credit report. All your lenders should have reported your information to one or more of the three official credit bureaus, Experian, Equifax or TransUnion. 

Go to AnnualCreditReport.com to get your free credit report. Look up reports from all three credit bureaus, just in case a provider didn’t report your loan to all three.  

If you already have an online account with a lender, go to their website and see if you can start making payments. You may have to call them directly to ask how to begin making payments. Before you do, ask them if that will affect your grace period. You should also ask them if it’s ok to make sporadic payments while you’re in college.  

Next, decide if you want to make manual or automatic payments. If you choose manual payments, you’ll have the flexibility to decide when to make a payment and how much. If you’re buying expensive textbooks one month, you may choose to skip a student loan payment. But if you get a raise from your part-time job, you may increase your payment.  

If you opt for automatic payments, you won’t have to log onto the account every month. Automatic payments are also good because there’s no chance you’ll talk yourself out of paying that money every month. It’s easy to think that you may need money for other priorities instead of your student loans. Plus, some loan providers give you a discount on interest if you set up automatic payments.  

When you start paying off your student loans, you probably won’t see a huge drop in your total balance. Anytime you pay back a debt, the first few year’s of repayment are interest-heavy. Most of your monthly payments will go toward interest, not principal.