Interest Accrual and Prepayment

Interest begins to accrue at the time of disbursement on your unsubsidized loans. While you are in school and during your grace period, the interest which accrues is simple interest (it is not compounded). In other words, you are only charged interest on the original principal amount you have borrowed. When you enter repayment at the end of your grace period, all of the accrued interest will be capitalized (added to the principal) and, therefore, interest will accrue daily on this new amount for the duration of your repayment.

You can elect to make interest only payments while you are still in school, or you can pay the interest off before it is capitalized just prior to entering repayment. Either of these options allows you to pay less during repayment since you will not be paying interest on the previously accrued interest. Most students cannot afford to pay the interest as it accrues and the savings you receive in doing so is not a significant amount of money. Paying interest before the capitalization, in this case, will save you $11.51 on a monthly basis or $1,380.86 over the life of the loan. However, as the amount you borrow increases, so will the amount of interest and this small amount could add up to bigger savings than stated here.

You can pre-pay any education loan at any point in time. You are not locked into a set number of years of interest or repayment. Keep in mind that if you do choose to make a payment larger than the required amount, unless the payment pays the loan off in full, you will still be required to make the next monthly payment on time and for the regular monthly amount. While the prepayment does not affect your monthly payment amount, it will affect the number of times you will need to make monthly payments. If you were on a standard 10 year repayment of 120 months and you prepaid an extra two months with your first payment (3 months at once), you will then have 117 months left of repayment and not 119. By prepaying a loan you are paying whatever interest has accrued to date and then principal. The more principal you pay, the less interest will accrue, saving you money and shortening your repayment time.

If you have several loans with one lender and you would like to prepay some of your higher interest loans, you should contact the lender first. The lender will be able to inform you of how to best go about communicating this information to them so that the credits are applied according to your wishes. If you do not communicate with the lender may spread the prepayment evenly over all the loans you have with them.

In order to begin repayment you first have to know what loans you have borrowed and to whom you will be making payments.

There are four resources available to help you know your total student loan history:

1. Your HLS Borrowing History Sheet (need Harvard email login). This will show you all the loans that were certified by SFS during your time at HLS.
2. StudentAid.gov (need your Federal FSA username and password) – This site will show all of your FEDERAL loans from any institution through which you borrowed federal funds (e.g. Direct Federal loans and Grad PLUS loans.)
3. Your credit reports which can be accessed by going to www.annualcreditreport.com  All three reports can be requested once per 12 months. All student loans are reported to a credit agency; not every lender uses the same agency.  Obtaining your credit reports and comparing them to your HLS borrowing summary sheet as well as the federal loan site, while not required, is a good exercise to verify that you have information on all of your loans and are not missing any lender.
4. Your promissory notes.

In general, you will begin repayment six or nine months after you separate from the University. If you had loans prior to law school and used all of your grace period, those loans will enter repayment 30 -60 days after your separation date.

Most lenders will send you one electronic monthly billing statement for all the loans you have borrowed through them.

You may be able to talk to your lender, before you begin repayment, about your monthly due date. If the lender says that your loan is due on the 20th of each month and you don’t get paid until the 25th, you can call the lender and ask about changing the date. Sometimes they will make an adjustment if the request is within reason.

Electronic debiting is a payment service that allows your lender or servicer to electronically deduct your monthly loan amount from your checking or savings account. Many lenders offer an interest rate reduction of 0.25% to students who have their payments withdrawn electronically. This is an easy way to make on-time payments and to avoid defaulting on your loans. You’ll also save time and money.

Tips for Successful Repayment:

• Make sure you have all your loan records organized.
• Know the amount of your student loan payments.
• Include student loan payments in your budget.
• Know when your loan payments begin.
• Contact your loan servicer immediately if you are having trouble making your monthly payments.
• Make sure you keep your contact information updated with all of your lenders. Initially, when you attend an Exit Counseling and complete the required forms, your contact information will be updated with your lenders. After this initial relay of information, any updates are your responsibility.