Managing Loans While In School
While payments aren't required on student loans for those enrolled at least half-time as degree seeking students, it's important to take an active approach to managing your educational loans while in school.
Whether your student loans are confusing and overwhelming, serve as a source of stress and anxiety, or appear to be too much of a financial burden to prioritize while in school, it's common that students tend to take a more passive approach to loan management until repayment begins. However, being knowledgeable about your total borrowing costs, the types of loans you have, and the unique terms associated with each can help to better prepare you for the impending responsibility and financial obligation that comes with the start of repayment.
Even with the added transitional time that a 6-month grace period often provides, many borrowers will find that it takes extensive planning to confidently manage student loans, and the time between graduation and repayment may not be enough to get you fully prepared to begin paying back your student loans. In fact, managing your loans should begin even before the start of your student journey as you think about the cost of your program options, what you anticipate needing to borrow to cover your educational expenses, and the return on your investment post-graduation and out in the proverbial real world.
Active loan management includes:
- Understanding potential borrowing totals and loan costs
- Identifying important timelines and due dates
- Knowing the lending agency and/or loan servicers you will be working with as a borrower
Continue reading below for action steps regarding active loan management while in school.
When thinking about the best course of action to begin managing your loans, getting a sense of your borrowing totals that will be needed to finance your educational experience is a great place to start.
Knowing what your student loan debt will look like long term can prove to be beneficial as you compare academic programs, make decisions on living expenses, and plan for life post-Duke. When simulating borrowing totals:
- Remember that federal loans charge an origination fee; what disburses to your student account is NOT what you are responsible for paying back
- Costs related to tuition and fees generally increase between 3%-4% annually
- In 2022, rent prices rose 30%-50% in Durham and other regions within the Triangle Area- while this increase is not typical, it demonstrates how much borrowing projections can change when used to cover living expenses!
- Certain co-curricular activities, like studying abroad or taking an unpaid summer internship, can lead to an increase in borrowing costs
- Some colleges and universities will charge different rates for in-state and out-of-state students
- When looking to borrow in future years at Duke or programs after your Duke experience, keep in mind:
- Certain loan programs restrict first and second year undergrad students from borrowing
- Undergraduate students are permitted to borrow significantly less in federal loans compared to what is available for graduate students
- Students do NOT need to accept all of the loans they have been awarded. Even if you discover your finances have changed mid-year and you need to borrow more, you can ask back for what you originally declined
- International students have very few borrowing options without a U.S. or permanent resident co-signer
- Look up information on starting salaries for positions you envision holding or that are common for others in your academic field to pursue. Does the expected income trajectory make sense for the loans you intend to borrow?
Visit studentaid.gov and use the Loan Simulator tool to explore different borrowing scenarios!
Be sure to analyze these borrowing totals within the context of your plans post-graduation. Does your future salary and cost of living considerations make sense with your long-term borrowing estimates? If you have concerns with how your borrowing estimates will impact your loan repayment, review our topics under the Student Loans 101 section of the website.
In addition to the outright costs of borrowing, nearly all student loans have an additional expense to consider.
Federal Direct Student and Parent Loans are the only types of educational loans currently offered that charge a standalone processing fee. This extra cost is called an Origination Fee. Origination fees on federal loans vary based on the type of federal loan, and can change year to year:
|First Disbursement Date||Loan Fee|
|Subsidized and Unsubsidized Loans: On or after 10/1/20 and before 10/1/23||1.057%|
|PLUS Loans: On or after 10/1/20 and before 10/1/23||4.228%|
These fees are withheld from your total disbursement and depending on your borrowing totals, can be quite substantial, possibly the equivalent of several months of groceries or rent. When managing loans in school, it is essential to plan with this fee in mind, especially for graduate students.
Nearly all loans will accrue interest, the actual cost of borrowing, at some point during the life of the loan. Subsidized loans from the Department of Education or Duke University will not accrue interest while you are considered a student, but will begin to accrue the additional cost once the loan goes into repayment.
Most educational loans have an interest rate between 4%-8% that accrue on a monthly basis. Student loan interest is considered simple interest, and does not regularly compound on itself. However, there are certain instances in the life of student loans where interest will take on a more compounding effect. To learn more, read the immediate section on Interest Capitalization below.
When possible, students should consider paying on interest accrual while in school. There is no penalty for paying down the interest before repayment, and students can make payments as needed or as it fits within their budget. To view your current interest accumulation and to begin reflecting on the best way to manage this cost, visit your lender or loan servicer site.
As noted above, students are not required to make payments on their loans, which applies to both the interest and the principal. But what happens to the interest that accrued on your loan while in school and during your 6-month grace period?
When a loan changes its status and goes from a passive state wherein payments are not required to an active status of repayment, any prior interest that has not been paid down gets added back to or capitalized on to the loan balance that accrued it to begin with. This is one of the instances where student loan interest can have a compounding effect as your capitalized interest will now accrue its own interest.
Capitalization occurs anytime there is a “major event” in the life of the loan. This includes entering into repayment following a grace period, the ending of an interest-accruing deferment or forbearance, and in certain instances, when a borrower enters into a new repayment plan (typically when the switch involves an Income Drive Repayment Plan).
Paying on the interest while in school can help to decrease or mitigate the impacts of capitalization, and can save you hundreds or even thousands of dollars long term.
Nearly all student loans follow a similar timeline when it comes to mandatory payments and due dates.
Remember, payments are not required for those considered students. However, there are specific metrics used to determine if someone is a student or not. To be considered a student, you must be a degree-seeking candidate enrolled at least half-time (taking 6 credits or 2 standard courses) in an academic program. In times of underloading or during leaves of absence, borrowers may actually begin repayment and will be subject to start paying back their loans sooner than they anticipated. In the event you plan on underloading or taking a leave while at Duke, make an appointment with our office to discuss the impacts your drop in student status will have on your repayment.
It is the norm of educational lenders to offer a grace period to borrowers, typically lasting 6-months, to allow for preparation and planning before repayment begins. The start of the 6-month grace period is oftentimes thought to coincide with commencement or graduation, however many schools and academic programs will actually consider your last day as a student to be the last day of classes. If your enrollment and subsequent separation is connected to the last day of classes instead of commencement, you could see yourself beginning repayment sooner than expected. Follow up with your specific program to clarify your reported separation date!
For borrowers interested in making elective payments, online maintenance of loans is the dominant form of managing your loans. Though many lenders will accept payments made via check and sent through the mail or payments made over the phone, paying online is the fastest and most convenient way to manage and make loan payments. When making payments, be sure to ask about additional fees and select a payment method accordingly to avoid unnecessary borrowing costs.
Whether it's making payments or reviewing your current borrowing projections, one of the best ways to manage your loans while in school is to visit your lender and/or loan servicer site. Many major borrowing programs, such as the federal loan program, will outsource most of the loan management tasks to third parties called servicers. Not sure who your federal loan servicer is? Find out on studentaid.gov!
Hand-in-hand with knowing your lender and servicer sites is clarifying what types of loans you borrowed in the first place! Loan programs each have their own unique set of terms and conditions, and if you borrowed through multiple loan programs or worked with more than one lender, you will most likely have different repayment obligations. Take the federal loan flexibilities that were implemented at the onset of the COVID-19 Pandemic: since March 13th, 2020, all federally held and serviced loans received a pause on mandatory payments as well as a 0% interest rate. Borrowers who were not aware of the constraints of this program and who worked with both federal and private lenders may have failed to manage the interest on their private loan while in school. Similarly, certain private lenders have begun offering certain discounts for students if they get good grades or graduate on-time. These savings may require documentation while in school, so it's important to stay connected with your loans even outside of repayment.