If you can afford to start paying down your Direct student loan right after it’s disbursed, doing so will help you in the long run.
Although repayment isn’t required until your loan is in repayment, you are still able to make payments at any time. When your loan is in a repayment status, your monthly payments will be applied to any outstanding interest first, and then the remainder of the payment will go to principal.
But if you make payments within 120 days of the date the loan is disbursed to your school, your entire payment goes solely to the principal balance of your loan. The payment is treated as a loan cancellation payment, and it will be made effective the same date as when the loan was disbursed. Any origination fee you were assessed will be adjusted based on your new, reduced principal balance, and less interest will accrue based on a smaller principal balance.
Please note that when viewing your online account history via Manage My Account (MMA), a cancellation payment will show a payment date that matches the loan’s disbursement date.
You can read more about simple daily interest accrual on our FAQ page.
Also, check out our repayment calculator to see how much cumulative interest you could save by paying extra on your loans.