07-10-2012 11:20 PM
I'll be attending law school this fall. Thanks to an amazing wife and partial scholarship, I won't need to take on any more student loans for law school!! But this brings me to my question - I've been reading on many different sites that I should continue to at least pay my interest on any unsubsidized loans that I currently owe. What exactly is the advantage of doing this? Unless I'm mistaken, interest on student loans are calculated only from the principal amount (not on the principal amount + interest). Wouldn't this to mean that regardless of whether I only pay my interest monthly or I don't pay any interest, after 3 years of law school, I'll have paid/accrued the same amount of interest? Of course, if the interest for each month is calculated NOT just from the principal amount, but rather from principal amount + accrued interest for each month, then I can see the advantage of paying the interest each month.
I apologize if this post is a bit confusing to read... probably cause I'm a bit confused on the matter.
Thanks in advance!
07-11-2012 07:47 AM - edited 07-11-2012 08:56 AM
It's true that interest is only calculated based on the amount of the principal. However, accrued interest on unsubsidized loans is periodically capitalized, which means that the amount of principal will ultimately be larger, which will generate greater amounts of interest.