If you are the typical American undergraduate, there’s a pretty good chance you got a couple of scholarships, a little bit of help from mom and dad, a couple thousand in savings, but still, that’s just not quite enough to pay for college, and you have to take out a loan to pay for school. Most people make use of federally insured Stafford loans, subsidized or unsubsidized, in order to help pay for their education.
When you are filling out the paperwork for your unsubsidized student loan, you will have the option to choose between a number of different banks which will service your loan. They’re usually pretty much all the same. You will also notice a little checkbox on your application which asks if you want to pay the interest for your student loan while you are taking classes.
Basically, what this amounts to is that your bank will send you a bill for the amount of interest which has accrued in your student loan while you are in school. After you get it you can choose to pay it which will decrease the amount of money you owe, or you can choose to not pay it, and they will just throw it back on your loan as if you had not checked the box.
So is it a smart thing to do? Chances are it really doesn’t matter either way. The amount of interest you will probably end up paying on a quarterly basis is less than $25, unless you got massive amounts of student loans for a private school. For the typical undergraduate attending a state school, you really will not be paying that much as an interest payment while you are in school. It’s still probably the right thing to do, because that way your balance is just a bit smaller (probably around $500) by the time you hit graduation. Most of us have a few bucks here and there we can put toward our interest payments, so why not go ahead and do it? Chances are if you don’t do it you’ll just waste it on pizza and No Doze anyway.
If you really want to do well in college, just throw the game of “should I pay off the interest or not?” out the window. Instead work extra, work at least 20 hours a week if not more, and throw that money toward your student loan. After four years of doing this, You will easily save $15,000 or $20,000 off your student loan debts. It might not be fun while you are in college, but afterwards it will have made all the difference.