When you take out a private student loan, the lender usually asks you a question that can cost -- or save -- you thousands of dollars: "Which repayment option do you want while you're still in school?" Most families pick the default without thinking twice. But the choice between full deferral, interest-only payments, and small fixed payments changes the total cost of your loan in a big way. According to Sallie Mae's "How America Pays for College" 2025 report, about 30% of families used private loans to help cover college costs in the 2024-25 school year. If your family is in that group -- or might be soon -- this guide breaks down exactly what each in-school repayment option means for your wallet.
What Are In-School Repayment Options?
Unlike federal student loans, which automatically defer payments until after you leave school, private lenders give you a choice. When you sign your loan agreement, you typically pick from three options:
- Full deferral -- You make no payments while enrolled at least half-time. Interest still adds up and gets added to your loan balance (this is called capitalization).
- Interest-only payments -- You pay just the interest that builds up each month. Your balance stays the same as the day you borrowed.
- Fixed payments (often $25/month) -- You make a small set payment each month. It covers some of the interest but usually not all of it.
Each option affects your monthly cash flow during school and your total repayment cost after graduation. Let's look at the real numbers.
How Interest Works While You're in School
Before we compare the three options, you need to understand how interest grows on a private student loan. Private loan interest rates for the 2025-26 academic year range from roughly 4% to 17%, depending on creditworthiness, the lender, and whether you pick a fixed or variable rate. According to the College Board's Trends in Student Aid data, private loan borrowing has grown steadily over the past decade as tuition costs outpace federal aid limits.
Here is the key fact: interest on private student loans starts building from the day the money is sent to your school. If you borrow $10,000 at an 8% fixed rate, you will owe about $66.67 in interest every month. Over a four-year degree, that is roughly $3,200 in interest alone -- before you make a single payment on the principal.
What happens to that $3,200 depends entirely on which repayment option you chose.
Option 1: Full Deferral (No Payments in School)
Rankings
Compare private student loan options
Compare College Ave, Earnest, and Sallie Mae — with Sallie's rate matched to this program where available.
- Rank #1Editor's Pick
Undergrad
College Ave
Best for: Students who want flexible repayment options and no origination fees
- 0.25% rate reduction with auto-pay
- Four in-school repayment options
- No application, origination, or prepayment fees
- Borrow from $1,000 up to 100% of cost of attendance
Apply NowRates
Lowest Rate 2.19%
2.19% - 17.99% fixed APR, 3.89% - 17.99% variable APR
Disclosures+
College Ave's student loan products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or BTG Pactual Bank, N.A., member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1) All rates include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. (2) As certified by your school and less any other financial aid you might receive. Minimum $1,000. (3) This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (APR): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 7/20/2026. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of the Flat Repayment Option with the shortest available loan term.
- Rank #2
Undergrad
Sallie Mae
Best for: Undergraduate and graduate students, and parents, comparing competitive fixed- and variable-rate private student loans
- Competitive variable and fixed rates
- Multiple repayment options
- Cosigner release available
- No origination fees
Apply NowRates
Lowest Rate 2.39%
2.39% - 17.49% fixed APR, 3.75% - 16.95% variable APR
Disclosures+
Undergraduate School Loan/Smart Option Student Loan: Examples of typical transactions for a $10,000 Smart Option Student Loan with the most common fixed rate, Fixed Repayment Option, two disbursements, a 4-year in-school period, and a 6-month grace: For a borrower with the shortest loan term, it works out to 16.16% fixed APR, 51 payments of $25.00, 119 payments of $296.32 and one payment of $41.82, for a total loan cost of $36,578.90. For a borrower with the longest loan term, it works out to 16.38% fixed APR, 51 payments of $25.00, 177 payments of $265.54 and one payment of $173.00, for a total loan cost of $48,448.58. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not. Information advertised valid as of 07/02/2026. Rates: Advertised APRs for undergraduate students assume a $10,000 loan with a 4-year in-school period, a 6-month grace, and the longest loan term offered. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan's Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Cosigner Release: Only the borrower may apply for cosigner release. To do so, they must first meet the age of majority in their state and provide proof of graduation (or completion of certification program), income, and U.S. citizenship or permanent residency (if their status has changed since they applied). In the last 12 months, the borrower can't have been past due on any loans serviced by Sallie Mae for 30 or more days or enrolled in any hardship forbearances or modified repayment programs. In addition, the borrower must have paid ahead or made 12 on-time principal and interest payments on each loan requested for release. The loan can't be past due when the cosigner release application is processed. The borrower must also demonstrate the ability to assume full responsibility of the loan(s) individually and pass a credit review when the cosigner release application is processed that demonstrates a satisfactory credit history including but not limited to no: bankruptcy, foreclosure, student loan(s) in default or 90-day delinquencies in the last 24 months. Requirements are subject to change.
- Rank #3
Undergrad
Earnest
Best for: Borrowers who want a zero-fee¹ lender with flexible repayment options² across undergrad, grad, and professional school programs
- 0.25% Auto Pay³ discount plus 0.25% Loyalty⁴ discount for eligible returning borrowers
- No origination fees, late fees, or prepayment penalties¹
- Borrow $1,000⁵ to $400,000 with 5, 7, 10, 12, or 15-year terms⁶
- Four repayment options², a 9-month grace period⁷, and cosigner release for eligible borrowers⁸
Check EligibilityRates
Lowest Rate 2.29%
2.29% - 16.24% fixed APR, 4.74% - 16.60% variable APR
Disclosures+
Earnest Private Student Loans are subject to credit approval. ¹Earnest does not charge fees for origination, late payments, returned check, or prepayments. Florida Stamp Tax: For Florida residents, Florida documentary stamp tax is required by law, calculated as $0.35 for each $100 (or portion thereof) of the principal loan amount, the amount of which is provided in the Final Disclosure. Lender will add the stamp tax to the principal loan amount. The full amount will be paid directly to the Florida Department of Revenue. Certificate of Registration No. 78-8016373916-1. ²Repayment terms and repayment options available vary based on loan type. ³You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. It is important to note that the 0.25% Auto Pay discount is not available when loan payments are deferred during the interim period as a result of selecting the deferred repayment option. ⁴To be eligible for the Loyalty Discount, applicants must have previously obtained an Earnest Private Student Loan and apply using the same email address associated with that loan. Only one Loyalty Discount may be applied per eligible Earnest Private Student Loan. Not all applicants may qualify. This offer cannot be combined with Earnest’s Rate Match program. Earnest may modify or discontinue this offer at any time and without notice, however, once a Loyalty Discount is earned, it will not be taken away. ⁵Residents of Hawaii must request a loan of at least $1,501. ⁶Available interest rates are subject to change. Interest rates as of 03/19/2026. Earnest’s Loan Cost Examples: 1.) These examples provide estimates based on principal and interest payments beginning immediately upon loan disbursement. Variable annual percentage rate ("APR"): A $10,000 loan with a 15-year term (180 monthly payments of $152.84) and a 16.85% interest rate without Auto Pay (16.85% APR) would result in a total estimated payment amount of $27,511.20. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 15-year term (180 monthly payments of $150.30) and a 16.49% interest rate without Auto Pay (16.49% APR) would result in a total estimated payment amount of $27,054.10. 2.) These examples provide estimates based on interest-only payments while in school. Variable interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $152.84) and a 16.85% interest rate without Auto Pay (16.85% APR) would result in a total estimated payment amount of $35,515.14. For a variable loan, after your starting rate is set, your rate will then vary with the market. Your actual repayment terms may vary. Other repayment options are available. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $140.42 for 57 months. Fixed interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $150.30) and a 16.49% interest rate without Auto Pay (16.49% APR) would result in a total estimated payment amount of $34,886.94. Your actual repayment terms may vary. Other repayment options are available. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $137.42 for 57 months. 3.) These examples provide estimates based on fixed $25 payments while in school. Variable interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $253.39) and a 16.85% interest rate without Auto Pay (14.92% APR) would result in a total estimated payment amount of $47,035.20. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $246.61) and a 16.49% interest rate without Auto Pay (14.65% APR) would result in a total estimated payment amount of $45,814.80. Your actual repayment terms may vary. Other repayment options are available. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $25.00. 4.) These examples provide estimates based on deferred payments. Variable interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $275.17) and a 16.85% interest rate without Auto Pay (14.67% APR) would result in a total estimated payment amount of $49,530.60. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $268.03) and a 16.49% interest rate without Auto Pay (14.39% APR) would result in a total estimated payment amount of $48,245.40. Your actual repayment terms may vary. Other repayment options are available. It is important to note that the 0.25% Auto Pay discount is not available when the deferred repayment option has been selected and the loan is in the interim period. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $0. ⁷Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school. ⁸To qualify for automatic cosigner release, the outstanding principal balance of your loan must be paid down to 50% or less of the original principal balance. The primary borrower must have made 36 months of required payments after the end of the Interim Period. The primary borrower must meet our eligibility and minimum credit requirements. Additional terms and conditions may apply. To request cosigner release, the primary borrower must have made 12 consecutive, monthly on-time principal and interest payments (or an amount equal thereto) immediately preceding the cosigner release application. The primary borrower must satisfy certain eligibility and credit criteria at the time of application. Additional terms and conditions may apply. ⁹Includes 0.50% combined Auto Pay and Loyalty discounts. Actual rate and available repayment terms will vary based on your financial profile. Fixed annual percentage rates (APR) range from 2.79% to 16.74% (2.29% - 16.24% with Auto Pay and Loyalty discounts). Variable annual percentage rates (APR) range from 5.24% to 17.1% (4.74% - 16.6% with Auto Pay and Loyalty discounts). Earnest variable interest rate student loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent plus a margin and will change on the 1st of each month. The rate will not increase more than once a month, but there is no limit on the amount that the rate could increase at one time. Our lowest rates are only available for our most credit qualified existing cosigned loan borrowers who receive the 0.25% Loyalty discount and requires selection of our shortest term offered, full principal and interest payment while in school, and enrollment in our 0.25% Auto Pay discount. Enrolling in Auto Pay is not required as a condition for approval. Interest rates are subject to change. Earnest Private Student Loans are made by FinWise Bank, Member FDIC. FinWise Bank, 756 East Winchester, Suite 100, Murray, UT 84107. Earnest student loans are serviced by Earnest Operations LLC, 300 Frank H. Ogawa Plaza, Suite 340, Oakland, CA 94612. NMLS #1204917, with support from Higher Education Loan Authority of the State of Missouri (MOHELA) (NMLS# 1442770). FinWise Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America. © 2026 Earnest LLC. All rights reserved.
Full deferral is the most popular choice because it feels the easiest. You sign the loan, the money goes to your school, and you do not think about payments until six months after graduation.
How It Works
During full deferral, interest builds every month and gets added to your principal balance. This is capitalization, and it means you start paying interest on your interest.
Example: $10,000 Loan at 8% Over Four Years
- Monthly interest: $66.67
- Total interest during 4 years of school: approximately $3,200
- Capitalized balance at graduation: approximately $13,200
- You now repay $13,200 (not $10,000) over your standard repayment term
If you have a 10-year repayment term after graduation at the same 8% rate, your monthly payment on $13,200 would be about $160. Over the life of the loan, you would pay roughly $19,200 total -- nearly double what you originally borrowed.
Who This Option Fits
Full deferral makes sense if your family genuinely cannot afford any payments during school. Sometimes cash flow is tight, and that is okay. But go in with your eyes open about the long-term cost.
Option 2: Interest-Only Payments
Interest-only payments mean you pay exactly the amount of interest that builds up each month. Your balance never grows. When you graduate, you owe the same $10,000 you borrowed -- not a penny more.
How It Works
Each month, the lender calculates the interest on your current balance. You pay that amount. Because you keep the balance flat, there is no capitalization.
Example: $10,000 Loan at 8% Over Four Years
- Monthly interest-only payment: approximately $66.67
- Total paid during school: approximately $3,200
- Balance at graduation: $10,000 (unchanged)
- Monthly payment during 10-year repayment: approximately $121
- Total cost over the life of the loan: approximately $17,750
Compare that to the $19,200 total under full deferral. Interest-only payments save you about $1,450 on a single $10,000 loan. If you borrow $40,000 over four years (a common total for private borrowers), the savings can reach $5,000 to $6,000.
Who This Option Fits
This option works well for students who have a part-time job or parents who can cover $50 to $100 per month per loan. It is the sweet spot between affordability and cost savings.
Option 3: Fixed $25 Monthly Payments
Some lenders offer a flat $25 per month payment while you are in school. This is a middle ground -- you are paying something, but not the full interest amount.
How It Works
You pay $25 each month. The lender applies that $25 toward the interest. If your monthly interest charge is higher than $25, the unpaid portion gets capitalized (added to your balance). If your interest charge is lower than $25, the extra goes toward principal.
Example: $10,000 Loan at 8% Over Four Years
- Monthly interest: approximately $66.67
- Monthly payment: $25
- Shortfall each month: approximately $41.67
- Interest shortfall over 4 years: approximately $2,000
- Capitalized balance at graduation: approximately $12,000
- Monthly payment during 10-year repayment: approximately $146
- Total cost over the life of the loan: approximately $18,500
The $25 payment option saves you about $700 compared to full deferral. That is real money, but it is less than half the savings of interest-only payments.
Who This Option Fits
This option works if you can spare $25 a month but not the full interest amount. It is better than doing nothing, but not by as much as most people expect.
Side-by-Side Comparison
Here is a clear look at all three options for a $10,000 private loan at 8% interest over a four-year degree, followed by a 10-year repayment period:
- Full deferral -- $0/month in school, $13,200 balance at graduation, approximately $19,200 total cost
- Fixed $25 payment -- $25/month in school, $12,000 balance at graduation, approximately $18,500 total cost
- Interest-only -- $66.67/month in school, $10,000 balance at graduation, approximately $17,750 total cost
The difference between the cheapest and most expensive option is about $1,450 on just $10,000 of borrowing. Scale that up to $30,000 or $50,000 in total private loans, and you are looking at $4,000 to $7,000 or more in extra costs from choosing full deferral.
The Impact of Higher Interest Rates
The examples above use 8%, but many private loans carry higher rates. According to data from the Education Data Initiative, borrowers with less established credit histories (common among students without a co-signer) may see rates of 12% or higher.
At 12% interest on a $10,000 loan:
- Full deferral leads to a balance of roughly $16,000 at graduation and a total cost of about $23,300
- Interest-only keeps the balance at $10,000 and costs about $21,400 total
- The savings from interest-only jump to nearly $1,900 on a single $10,000 loan
Higher interest rates make the case for in-school payments even stronger. Every dollar of interest you do not pay gets added to your balance and starts generating its own interest.
Challenges to Watch
Not All Lenders Offer Every Option
Some private lenders only offer full deferral or interest-only payments. A few offer the $25 fixed payment option. Before you sign, ask the lender exactly which in-school repayment choices are available. If a lender only offers full deferral, that should factor into your comparison shopping.
Variable Rates Make Planning Harder
If you chose a variable-rate loan, your monthly interest charge will change over time. An interest-only payment that starts at $50 per month could rise to $80 or more if rates increase. Build some cushion into your budget if you go this route.
Capitalization Happens at Key Moments
Even if you make interest-only payments during school, some lenders capitalize any unpaid interest when you enter the full repayment period. Read your loan agreement carefully. Ask the lender: "Will interest capitalize when I leave school, even if I have been making interest-only payments?" The answer matters.
Co-Signer Responsibility
According to the Federal Student Aid office, most private student loans require a co-signer. If you are a parent co-signing a loan, the repayment option your student picks affects your credit too. A deferred loan with a growing balance shows up on your credit report. Missed payments -- even small ones -- can hurt both of your credit scores.
Multiple Loans Add Up Fast
Most students do not take out one loan. They borrow each year. If you have four separate private loans, each with its own interest rate and repayment option, the total monthly cost of interest-only payments can grow. A student with $40,000 in private loans at an average rate of 9% would need to pay about $300 per month to cover all the interest. That is doable for some families, but not all.
Smart Strategies for Families
Start With Interest-Only If You Can
Even if it feels like a stretch, interest-only payments are the single best thing you can do to reduce the total cost of private student loans. The math is clear. If your family can cover the payments, do it.
Switch Options if Your Situation Changes
Most lenders let you change your in-school repayment option. If you start with full deferral because money is tight freshman year, you can switch to interest-only payments when a student picks up a summer job or a parent's financial picture improves. Call your lender and ask.
Make Payments Even in Deferral
Even if you chose full deferral, nothing stops you from making voluntary payments. Any amount you send -- $20, $50, $100 -- gets applied to interest first. This slows down capitalization and saves money over the life of the loan. There is no prepayment penalty on private student loans.
Compare Before You Borrow
The best time to think about in-school repayment is before you sign the loan. Use tools like CollegeLens to compare the true cost of different loan options side by side, including how each repayment choice affects your total cost.
Frequently Asked Questions
Can I switch my in-school repayment option after I have already started?
Yes, most lenders allow you to change your repayment option. Call your loan servicer and ask about switching. Some lenders let you do this online. There is usually no fee, but the change may take one billing cycle to go into effect.
Do interest-only payments affect my credit score?
Yes, in a good way. Making consistent on-time payments -- even small interest-only ones -- builds your payment history. Payment history is the biggest factor in your credit score. Full deferral, on the other hand, does not help you build credit because you are not making payments.
What if I can only afford interest-only on some of my loans?
Prioritize the loans with the highest interest rates. Pay interest-only on those and defer the ones with lower rates. This gives you the most savings for each dollar you spend.
Are there tax benefits to paying student loan interest while in school?
You may be able to deduct up to $2,500 in student loan interest per year on your federal tax return, depending on your income. This applies to interest paid on both federal and private loans. Check with a tax professional or visit the IRS website for current rules for the 2025-26 tax year.
How do I know how much my monthly interest-only payment would be?
Take your loan balance, multiply by your annual interest rate, and divide by 12. For example: $15,000 x 0.08 / 12 = $100 per month. Your lender will also tell you the exact amount on your billing statement.
The Bottom Line
The repayment option you choose while still in school is one of the most important decisions you will make about your private student loans. Full deferral is tempting because it costs nothing today. But it costs the most tomorrow. Interest-only payments take discipline and a monthly budget commitment, but they can save you thousands of dollars over the life of each loan.
If you are a student, talk to your family about whether interest-only payments are possible. If you are a parent, think about whether covering interest payments during school is a better use of money than paying a larger total later. The numbers almost always favor paying now.
Before you borrow, compare your options. CollegeLens can help your family see the real cost of each loan choice -- including in-school repayment options -- so you can pick the path that fits your budget and your goals.
Sravani at CollegeLens
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