Student Loan Myth VI: No interest ever applies while I’m in school

This is the final installment in part two of three that covers common Student Loan Myths.  This one has to do with the commonly misunderstood world of interest.

What you think happens. I am at least a half time student.  My loan servicer just sent me a notice telling me there is interest accruing on my account.  They tell me while I don’t have to pay the interest now, it’ll benefit me in the long term.  If I’m in school, I didn’t think I should have interest at all!

What actually happens. For all loans your interest accrues from day one.  For subsidized loans disbursed before July 1, 2012 the government pays your interest while your are in school or in grace period.  For loans disbursed on or after July 1, 2012 the government pays your interest while you are in school but during your grace period, you are responsible for your interest.  For unsubsidized loans, you are responsible for all interest.

Where there may be a morsel of truth to this.  Obviously the only truth lies in the fact that there are situations where the government does take care of your interest but remember this only happens when the government “subsidizes” the interest through subsidized loans.