If you have chosen to take out one or more private student loans (loans provided by a bank, credit union or other lending institution) to help finance your education, it’s important to understand the available options for repaying that debt. Your approach to repayment should factor in potential cost savings, as well as your personal financial circumstances.

Following are potential repayment options, along with some pros and cons to consider:

Immediate Repayment Plan

 
PROS: You can pay your loan off sooner and save money on interest. 
CON: It may be challenging to afford this monthly payment while you’re in college.

An immediate repayment plan enables you to start making full monthly loan payments while you’re still in school. If you take this approach, you will be left with fewer payments after graduation.

In addition, you will save on interest because, as your loan balance diminishes with each payment, the amount of interest charged on your loan will also diminish. Interest, which is charged as a percentage of your loan balance, accrues on your private student loan from the time the funds are sent by the lender to you or your college. Unless you make payments while you’re in school, that interest keeps growing throughout your college years, leaving you with more to pay off at graduation. 

Of course, not every student can afford to take on full monthly loan payments while in school. That’s why many lenders also offer interest-only or fully deferred repayment plans.
 

Interest-Only Repayment Plan

 
PRO: Your loan balance will not grow while you’re in college. 
CON: It may be challenging to afford this monthly payment while you’re in college.
 
An interest-only repayment plan lets you make lower monthly payments on your private student loan while you’re in school — just enough to cover the interest so that your loan balance doesn’t grow during this time period. You won’t be paying down the principal balance (the original amount of the loan), but when you do start making full monthly payments, you won’t have accrued interest to pay in addition to the principal. 
 
Some lenders offer the option of a partial-interest repayment plan, where you make an affordable fixed monthly payment to pay off at least some of the interest as it accumulates. Again, the goal is for you to end up with a smaller amount to pay back once you’ve graduated. 
 
If interest-only or partial-interest payments put too much pressure on your budget while you’re in school, a fully deferred plan may be a better option for you.
 

Fully Deferred Repayment Plan

 
PRO: You don’t have to make any payments while you’re in school. 
CONS: The overall cost of the loan will be higher, and it may take longer to pay off your loan. 
 
Fully deferred repayment plans are designed for students who can’t make loan payments while attending college. If you choose this type of repayment plan, you don’t have to make any payments while you’re in school. In addition, some lenders offer as much as a six-month grace period after graduation before your first payment is due. Just remember that your loan balance continues to grow as the interest on your outstanding balance accumulates, so the sooner you can start making payments, the better.