During College: Cut Your Federal Student Loan Borrowing Costs in One Simple Step

There’s one simple step you or your child can take to reduce interest that’ll be repaid on an Unsubsidized or PLUS Loan borrowed from the Federal Direct Loan Program (FDLP)?

Just pay back all or part of the loan within 120 days of its disbursement date — i.e. the date any of loan funds are spent on your tuition and fees or released to you, whichever occurs first — and attach some brief written instructions telling your loan servicer to apply all of it to this term’s FDLP Unsubsidized or PLUS Loan.

That’s it! That’s all you or your child needs to do!

The gory details . . .

First, remember three things about FDLP Unsubsidized and PLUS Loans:

(1) Interest gets charged on them beginning on the disbursement date, and it just keeps building up.

(2) When your grace period ends, outstanding interest gets capitalized — added to your loan’s principal. Thereafter, interest gets charged on the inflated principal.

(3) But 100% of what’s paid back within 120 days of disbursement reduces your loan principal and causes interest outstanding on that principal to be cancelled.

Now let’s say you’re a new freshman whose disbursement date on a $1,000 FDLP Unsubsidized Loan for the fall 2018 academic term was August 24. As fall term is ending you realize you won’t need $100 of this loan, so you pay back $100 on December 10 — 111 days after the disbursement date.

Paying back $100 within 120 days of disbursement eliminates $100 in loan principal and $52 in interest you’d otherwise repay on that principal during a standard 10-year FDLP repayment period. It’s like getting a 52% return on investment!

Your financial aid office can take your payment and written instructions and forward them to your servicer. Absent such instructions, your servicer’s required to split your payment between all of your FDLP loans, including FDLP Subsidized Loans, which are less expensive to repay.

Imagine how much you’d save by paying back more than $100 within 120 days of disbursement, or your savings if you make such a payment every term on your FDLP Unsubsidized or PLUS Loan.

Reduce what you’ll repay after graduation! Take this one simple step with whatever you don’t need from your FDLP Unsubsidized or PLUS Loan!

Contact College Affordability Solutions for free consultations on ways to reduce your postsecondary borrowing costs.

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