Let us all take a moment of silence to thank our student loans for getting us through college. How could we ever repay them?
Jokes on us, we have to repay them.
In all seriousness, understanding your student loan repayment plan options is incredibly important, especially with private student loans. When you take out a private loan, interest starts to accrue as soon as the amount is disbursed. So, if you’re using a private loan to pay for your education, it will accrue interest the entire time you’re in school.
While every private lender has its set of repayment plans, there are four main repayment plans that have become quite common across the industry.
- Immediate Repayment
- Interest-Only Repayment
- Partial Repayment
- Deferred Repayment
In this article, we’ll break down the four main repayment plans for private student loans, and provide some suggestions that could save you money in the long run by minimizing the interest that accrues.
Immediate Repayment
Opting for immediate repayment means you would make full payments as soon as the loan is disbursed, including while you’re still in school.
Benefits of Immediate Repayment
- By making full payments right away, you will be able to minimize the interest you pay, resulting in the greatest savings.
- You will be able to get a good head start on repaying your loan by the time you graduate as you would’ve already paid a decent chunk in both interest and principal.
Downside of Immediate Repayment
- For a majority of students, it just isn’t realistic to make full payments while still enrolled in college.
Interest-Only Repayment
Similar to immediate repayment, interest-only repayment requires you to make some payments while still in school. The difference is that you’re only paying interest rather than the full payment.
Benefits of Interest-Only Repayment
- The monthly payments may be more manageable as they’d be only for the interest.
- Your loan balance won’t grow while you’re still in school.
Downside of Interest-Only Repayment
- You won’t actually be paying down your loan. Because the interest compounds, your payments would prevent you from owing more than you borrowed when it’s time to make full payments, but you won’t actually be paying off any of the initial loan amount.
Partial Repayment
Partial repayment is similar to immediate and interest-only repayment in that you make payments while in school, however, partial repayment may be more manageable depending on your overall loan amount.
Partial repayment requires you to pay a set amount, typically around $25, per month while still in school to reduce the accrued interest. (This could get confusing to differentiate partial repayment from interest-only repayments. Interest-only repayments would cover the entire monthly interest, as where partial repayment would only cover part of the monthly interest.)
Benefits of Partial Repayment
- You can keep your loan balance in check and reduce the total amount repaid.
- Your loan balance won’t grow as quickly in comparison to not making any monthly payments while still in school.
Downside of Partial Repayment
- You would still owe more than you borrowed by the time you graduate.
Deferred Repayment
Deferred repayment is the only repayment plan that doesn’t require you to make payments while still in school. With this plan, payments would likely start after the grace period ends, typically 6 months after graduation.
Benefits of Deferred Repayment
- You won’t have to make any payments while you’re still in school.
Downside of Deferred Repayment
- You will likely pay the highest overall cost. Unpaid interest will compound and add to your principal amount at the end of your grace period.
So What Should I Do?
Making full or partial loan payments while in school could save you thousands of dollars over time and is certainly recommended. But at the end of the day, the best private loan repayment plan is the one that works within your budget.
Check out the table below for a quick breakdown of the four main repayment plans offered by private student lenders.
Private Student Loan Repayment Plans
| Repayment Plan | Terms | Pros | Cons |
| Immediate Repayment | Make full payments as soon as the loan is disbursed, while you’re still in school. | You will minimize the interest you pay, resulting in the greatest savings. Because you’re paying down both interest and principal while you’re still in school, you’ll already have made a good start on repaying your loan by the time you graduate. | For many students, it’s not realistic to make full monthly payments while still enrolled in college. |
| Interest-Only Repayment | Pay only interest while you’re in school. | Your monthly payments will be more manageable, and your loan balance won’t grow while you’re in school. | You won’t make any progress paying down your loan balance while you’re a student. But at least you won’t owe more than you borrowed when it’s time to start making full payments. |
| Partial Repayment | Pay $25 per month while you’re in school to reduce accrued interest. | You can keep your loan balance in check, and reduce the total amount repaid. | You’ll still owe more than you borrowed when you graduate, but your loan balance won’t grow as quickly. |
| Deferred Repayment | Don’t make any payments while you’re in school. Begin repayment after graduation or 6 months after graduation. | You won’t have to make payments while you’re in school. | You will likely pay the highest overall cost since unpaid interest will be added to your principal amount at the end of your grace period. |
Final Thoughts
Understanding the different repayment plans for private student loans is crucial in making informed decisions about how to manage your debt. While there are pros and cons to each plan, making full or partial payments while in school can help minimize the overall cost of your loan. Ultimately, the best repayment plan is the one that fits your budget and financial goals. By taking the time to research and compare your options, you can make a plan that works for you and help set yourself up for a financially stable future.