What Are Interest-Only Repayment Plans?

In an interest-only repayment plan, borrowers pay back only the interest that accrues on their loan every month. This is unlike standard repayment plans. Monthly payments are used to cover a part of both, interest as well as principal.

While there are some benefits to choosing interest-only repayment plans, there are also a few downsides to this option.

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The Benefits of an Interest-Only Repayment Plan

The biggest benefit of opting for an interest-only payment plan paying off the interest that accrues every month. Thus, you prevent it from being added to the principal amount. In doing this, you reduce the total interest that you would otherwise pay over the life of your loan. This can add up to some serious savings.

Another expected benefit of opting for an interest-only plan is that it forces you to save enough money every month to honor your financial obligation. Saving money will become a habit over a period of time, lowering your risk of defaulting when you have to make larger monthly payments after you graduate.

Laurel road company logo.

Fixed cap on variable-rate loans

Variable rates from 1.64% - 5.65% APR with auto-debit

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Downsides of Interest-Only Payments

By using your savings to pay off the interest while you are still in college, you may miss out on opportunities to use those funds for other purposes such as building up an emergency fund.

Additionally, this payment method only takes care of the accruing interest, not the principal loan amount. After graduation, you’ll still have to pay back the full loan cost.

 

Lender Rates (APR) Eligibility
Earnest company logo.
Variable APR: 1.88% - 5.64%*
Fixed APR: 2.44% - 5.79%*
Undergraduate and Graduate
VISIT EARNEST
Lendkey company logo.
Variable APR: 1.90% - 5.25%*
Fixed APR: 2.49% - 7.75%*
Undergraduate, Graduate, Parent PLUS
VISIT LENDKEY
Credible company logo.
Variable APR: 1.80% - 9.99%*
Fixed APR: 2.15% - 9.99%*
Undergraduate and Graduate
VISIT CREDIBLE
Laurel road company logo.
Variable APR: 1.64% - 5.65%*
Fixed APR: 2.25% - 5.75%*
Undergraduate and Graduate
VISIT LAUREL ROAD
Commonbond company logo.
Variable APR: 1.96% - 7.02%*
Fixed APR: 2.59% - 6.94%*
Undergraduate, Graduate, Parent PLUS
VISIT COMMONBOND
Fixed APR: 2.44% - 5.97%*
Undergraduate, Graduate, Parent PLUS
VISIT ISL Education Lending
Variable APR: 1.87% – 5.33%**
Fixed APR: 2.30% – 5.96%**
Undergraduate, Graduate, Parent PLUS
VISIT Nelnet
Variable APR: 2.94% - 4.84%*
Fixed APR: 2.99% - 4.94%*
Undergraduate and Graduate
VISIT College Ave
Variable APR: 1.86% - 6.01%*
Fixed APR: 2.47% - 5.99%*
Undergraduate and Graduate, Parent PLUS
VISIT ELFi

*APR includes a 0.25% interest rate reduction for enrollment in automatic payments.

**Interest rate reduction of .25% for automatically withdrawn payments from any designated bank account (“auto debit discount”). Auto debit discount applies when full payments (including both principal and interest) are automatically drafted from a bank account. The auto debit discount will continue to apply during periods of approved forbearance or deferment if the auto debit discount was in effect at the time of receiving the forbearance or deferment. Auto debit discount will remain on the account unless (1) the automatic deduction of payments is canceled or (2) there are three consecutive automatic deductions returned for insufficient funds at any time during the term of the loan.

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