Start Taking an Interest in Interest: Student Loans

Oh, student loans. We lament you!

Student loan debt is fast becoming a crisis to rival credit card debt. Currently, more than over $1.48 TRILLION is owed by about 44 million current and former students in America.

This means young people are saddled with $20k, $30k, $50k, even $100k in debt by the time they graduate, before they even think about buying a car or a house.

But what are you supposed to do? You have to get an education somehow, right?

While there is not nearly enough education out there on the fine print of student loans and how to minimize the debt you do have, the focus of this post is interest (don’t worry, we will have a post all about student loans!).

You know what really irks us about student loans?

Here we have a bunch of kids with little to no training or experience about how credit works taking out HUGE amounts of loans because they have no other means to pay for school. The worst part is that students can get loans for everything, all at a hefty interest rate. In fact, many students use their loans for far more than legitimate education and living expenses (Cancun, anyone?) without realizing they’re racking up serious debt. Basically, lenders are taking advantage of financially naïve kids.

Let’s look at current Federal Direct Student Loan rates.



While these rates don’t seem too high compared to some of the ones we’ve been showing you, 6 or 7% is a lot to pay for people fresh out of college without much income or savings. As a result, most people pay off student loans with minimum payments every month (or defer them), and you should know by now how that usually ends up.

Take a look at some examples (found at Navient). You can also use a customized repayment estimator at



As you can see, even with low to mid-level (compared to credit cards) interest rates the amount of interest you’ll pay over 10 years is pretty substantial. As always, the best way to reduce interest paid is to pay extra toward the principal as often as possible. This should especially be a focus once you have a stable job, and paying off student loans should be a priority BEFORE accruing more debt.

But this isn’t even the worst thing.

Most people know that student loans don’t begin accruing interest until you’ve graduated, and you’re usually allowed a 6-month grace period, right?

Not always. Did you know that some student loans start accruing interest when they’re dispersed? Your “grace” period is really their harvest period!

This means your loans may begin accruing interest when you get them, not when you graduate!

If you have Direct Unsubsidized, FFELP Unsubsidized, Direct and FFELP PLUS, or Private loans check your statements, because your loans are likely accruing interest as we speak. This means you may have several years of interest built up on your loan before you even start paying it back!

Don’t worry too much, though, you can begin paying your loan back the day after you obtain it. If you can afford to while going to school, a $50 or $100 payment each month will substantially reduce the interest you pay by the time you graduate. Or better yet, don’t take out as many loans in the first place!


Moral of the Story

Unfortunately, many people are backed into a corner when it comes to student loans, and they have to take whatever options are given to them. Despite the limited options, there are some things you can do to reduce the amount of interest you’ll pay on student loans.

First, take out as few loans as possible, and only use loans for school-related expenses.

Next, DO NOT defer your loans unless absolutely necessary, as interest will still accrue on them. When you do begin to pay back your loans, make more than the minimum monthly payment if possible.

Third, and most importantly, make paying off your student loans a priority BEFORE you look to accrue more large ticket debt items. You’ll soon need a car to commute to your new job, and maybe you’ll want to buy a house soon after.

While student loans may be necessary for many of us, they don’t have to cripple your financial situation. Keep the loans low, and pay them off fast. If you can, begin making payments while you are still in school.

Talk about Money Saved.


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Tawnya Redding

Tawnya is an elementary special education teacher by day and co-blogger at Money Saved is Money Earned by night. She holds an Honors BS in Psychology from Oregon State University and an MS in Special Education from Portland State University. She has had a pretty successful writing career, first as a writing tutor at the Oregon State University Writing Center, and in recent years, as a freelance writer. Tawnya and co-blogger Sebastian have a wealth of knowledge and information about personal finance, retirement, student loans, credit cards, and many other financial topics. They teach people how to save money, make money, and understand money.

12 thoughts on “Start Taking an Interest in Interest: Student Loans”

  1. My daughter is on her way to college this fall. One school is paying for almost all of it and the other half of it. I’m hoping she goes with the first choice. Other than class choices what would be a reason to turn down a 97% paid for scholarship?

  2. Good information. I have student loans I am trying to get rid of. I have had to defer them a few times and the interest is killing me. It is my priority right now.

  3. Student loans are a business, pure and simple. My son is attending a large university in Germany as an International Student and he is paying a fraction of what that same course costs domestically. Even young kids are starting to clue in to the fact that in a lot of cases school in North America is a scam.

  4. I hate the whole student loan situation. Here in the UK it’s a government loan and we are lucky not to have to start paying it back until you reach a certain pay threshold. I think the biggest issue is the students not being able to get in to work after they graduate.

  5. Our Family World

    These are all wise pieces of advice. I can be thankful for my parents for giving me good financial education too. At least I was able to manage my student loans repayment by avoiding skipping payments. I hope the young college students understand what debt they are getting into before they take out huge loans. If they do, I wish they would spend it wisely.

  6. Ann Snook-Moreau

    A lot of people don’t realize that interest is where they get you, so thanks for this! I paid the interest on my student loans while I was in school so I’m just paying back the principal now.

  7. Very interesting to read. In the UK because I’m not earning a certain amount I’m not yet paying it back but having so much debt hanging over me is a worry.

  8. Wow. This is interesting. It’s a shame that you have to take loans for education. Thankfully I never had to go through this. It really seems like a hassle to deal with… Who needs more debt?

  9. I have kids that are old enough to start thinking about college. Which means I’m old enough to think about the finances. Whew!

  10. I’m from Croatia and, fortunately, we don’t have these problems. For some students, college is free and for others (part-time students) is at most 1000 euros a year. When I read your post, it really makes me think. It makes finishing college quite a challenge.

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