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Determining When to Start Paying Off Student Loans

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Disclaimer – Before we start – We aren’t financial experts and most likely, neither are you! This post isn’t designed to get anything from you, it is designed to teach from experience. One of the best ways to learn to start paying loans back is to talk to others who have gone through the experience before. Please feel free to leave comments or email us at contact@fulltimenurse.com for any help with financial questions or student loan questions – we are more than happy to help others free themselves from debt! This is our guide on How to Start Paying Off Student Loans While In School.

Student Loans: We All Have Them

One big question that students or post-grads question is whether or not to pay off student loans (debt) as quickly as possible, over-time, or as a lump some? This can be followed up with should you and how to start paying off your student loans while in school? Well, this isn’t as straightforward as “do this or do that”, it should be examined on a case-by-case basis, but hopefully we can give you some guidance on exactly what to do for your situation. This is Full Time Nurse’s Guide on Paying Back Nursing School Loans.

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Student Loans: What Are They, How Do They Work?

Debt is the amount of money owed or due. Student loans are a form of debt that will have a form of fee attached to it called interest. The reason most students accrue student loans is because college is expensive! Paying for college out of pocket is difficult sometimes so student loans can alleviate some of that stress for parents and students.

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One good resource we found was this article explaining a more advanced way of exactly how student loans work, but here is our simple explanation.

A loan is borrowed money from a loaner (bank or institution). The way these loaners make their money is charging interest (fees) on the money borrowed. Typically this interest can accrue is compound interest which means that every day you don’t pay back the loans, these loans will accrue more interest.

For a simple example say you borrow $1000 with 10% APR. At the end of 1 year, if you haven’t made any payments, the amount you owe will be $1100 ($1000 + 10% of $1000).

Loans from different lenders will have different interest rates and some loans from the government will even be subsidized. Subsidized loans are those that do not start accruing interest until after a certain date (usually after graduation). Unsubsidized loans start accruing interest from the day you take the loan (these are most loans) – so if you were to take $1000 at 10% APR, after 4 years of undergrad without paying at all, you will owe $1400 (most likely somewhere around $1600 due to the compounded interest on the interest already accrued, but for simplification we will say $1400). 

One easy way to see this on paper is to use an interest calculator like this one.

The takeaway from this is that the longer it takes you to pay your loans, the more and more you pay. Now this isn’t just with student loans, this is the same for credit card debt, real estate debt and many other types of debt.

When & How to Start Paying Student Loans

The easy answer to when is: as soon as possible (you will be forced to start 6-months after graduation paying minimum payments). The sooner you start paying back loans, the less you will pay over time. Now, we know that paying big portions of debt off relies greatly on your income to debt ratio, but we can also give the simplest advice we can give (link to finance blog). Start paying off credit card debt first and once finished with that start digging into student debt (obviously paying the minimum payment until done with credit card debt). Start paying the greatest amount that your budget will allow to avoid paying more interest over time.

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Paying Loans While Still In School

But, let’s say that you want to start paying loans back while still in school. 

Here is our example scenario:

$1500 – subsidized – 4.5%

$2000 – subsidized – 4.4%

$2000 – unsubsidized – 2.5%

$3000 – unsubsidized – 2.8%

If you were in this scenario with a total of $8500 of loans, I would start by paying your unsubsidized loans starting with the highest interest rate (2.8%). If you remember these are the types of loans that accrue interest from the time of conception so paying these first would benefit you by saving money on interest over time. Secondly would be to pay the 2.5% unsubsidized loan. If you only have subsidized loans it would be beneficial to wait to pay these off until you graduate because they won’t accrue any interest and you can invest the money into accounts that would make you money instead.  

Paying Loans After School (Post-Graduation)

Paying loans back after school is most common and most likely the easiest route. It can be the most expensive route, but for some people that is the only option. If this was the case, start by paying off the loan with the highest interest rate (regardless of unsubsidized or subsidized). Most lenders allow you to choose the loan or direct your payments toward a specific loan first.

Conclusion: Understanding Your Debt

In conclusion, how to start paying off student loans while in school? Find out what type of loans you have, understand them, and go from there. Student loans aren’t something to be scared of, and paying them off doesn’t have to be scary. The first step to this is understanding where your debt comes from, how it’s determined and knowing a strategy to start paying the debt off. A good resource for understanding debt and knowing how to start paying it back is NerdWallet. Full Time Nurse also has a Finance section, feel free to check out some of our other articles!

Full Time Nurse

Striving to help nurses and nursing students succeed.

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