Why You Should Start Paying The Interest Immediately on Your Student Loans

Why you should start paying your interest immediately on your student loans

If you can, you should always pay your interest on your student loans even when it’s in deferment or forbearance. Interest accrues daily and the higher your balance and the higher your interest rate, the higher the amount applied to your loan every single day. Paying the interest during your grace period could save you hundreds if not thousands of dollars in the long run and greatly affect the amount you have to pay back when your loan comes due.

Student Loan providers are tricky, and each of them handles your payments and accrued interest differently. For instance, when you have a significant amount of interest accrued with Navient due to your loan being in deferment or forbearance they take that amount and add it on to your principal regardless if your loan is in repayment or not. It will show up on your account as capitalized interest.

American Education Services, also known as AES on the other hand, handles things completely differently.  When your loan is in deferment/forbearance, your interest accrues per usual however it’s never added on to your principal as capitalized interest until you enter repayment. Instead, it builds a “wall” between you and your principal. You’re probably wondering what do you mean a wall? I use the word “wall” because that’s exactly what it is, it’s a wall separating you from your principal and to get to your principal you have to satisfy the balance of the interest first. When I read this in their FAQ, I couldn’t believe it so I called AES to be sure I was accurately comprehending what I’d read. I have an outstanding Student Loan balance with AES of over $41K. Before I could even begin to start paying on my principal, I would have to pay over $3000 in accrued interest. You probably think well it doesn’t matter because you have to pay off the interest anyway and yes you’re right, but when you’re working the debt snowball, the last thing you want to see is your balance not moving after you’ve just dropped a large amount towards the bill.

If my husband and I would have been making small payments of about $50 a month towards the student loan interest we could have presumably avoided this. We have other loans that are also in deferment that we won’t get to until much later on, our snowball. After taking a look at those loans, I realized the interest had capitalized on to the principal amount and our interest is making interest on itself making how much we have to pay back ridiculously larger. Did you pay your interest while in school or is the amount of interest you owe on your student loans out of control? Share your story in the comments.



  1. March 8, 2016 / 11:44 am

    It’s unbelievable how much debt most students graduate with these days. It can be crippling to a new grad to find an entry level job and be able to make the student loan payments. I agree that it’s so important to at least pay the interest on the loans, since that accrues daily!

  2. March 8, 2016 / 10:41 pm

    The interest can really add up quick so it makes sense to pay it off ASAP. Whenever I was pleasantly surprised by my bank account balance I would always put another $50 toward my payments and this really helped! Debts add up faster than you realize, especially when you have such large loans.

  3. March 8, 2016 / 10:41 pm

    I have student loans on both Navient and AES. I haven;t had to defer anything,.. yet but it is good to know how both handle those situations. My husband went back to school so his loans were in a grace period. Now we’re starting to repay all that back. Ugh!

  4. March 10, 2016 / 4:10 am

    Paying interest on time is really crucial since the loan amount gets bigger over time when interest in left unpaid. Also, it is better to have a good credit rating in banks and financial institutions. Sometimes, the interest is even larger than the principal.

  5. March 10, 2016 / 3:09 pm

    Great Advice!! I promise my Student Loans have been the thorn in my side for years but these are some really great ways to help make that burden a bit lighter.

  6. April 13, 2016 / 11:59 am

    Great pointers. I had a loan like Navient’s but the lender never disclosed in the promissory note nor in any correspondence or on its website that that is how the “wall” of interest would work. So I ended up paying the accumulated interest for two years (while new interest accrued monthly) before any of my payments went to principal.

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