If you have unsubsidized federal student loans, you are responsible for the interest on your loans. That interest begins to accumulate as soon as your loan is disbursed. You have two options:

Pay the interest while you are in school and during your grace period. If you can afford to pay the accumulating interest on your loans while you are in school and during your post-school grace period, you can reduce your loan costs by hundreds and perhaps thousands of dollars. For example, if you borrow $10,000 over four years of college, you could accumulate as much as $1,450 in interest, assuming a fixed interest rate of 6.8 percent. If you pay the interest as it accumulates, you will graduate owing $10,000. If you don’t pay the interest while in school, you will owe $11,450.

Allow the interest to be capitalized. If you decide not to pay the interest on your unsubsidized loans while you are in school, the accumulating interest will be capitalized, which means it will be added to your loan principal. Interest will then accumulate on this larger balance. As a result, your loan costs will be higher.

If you decide to pay unsubsidized interest while in school and during your grace period, contact your lender or servicer to let them know of your choice.