Background story: Wife is in Med school but has taken a year off to have our first child! Which means that the $71000 (+$4000 in accrued interest) we have in loans will be pass the 6 months of grace period and we'll have to make payments until the May time frame when my wife will be again in school. I'm saving up tons of money to hopefully pay for the last 2 years in cash ($34000 a year). Because of this year off, the $4000 in accrued interest will be compounded in December. I want to save for the last 2 years but I don't want the $4000 to be added to the principle. Should I pay the $4000 in interest to keep it from compounding and take our a $4000 loan for the next year of med school or keep saving for the last two years in cash and not worry about the compounding interest? I can't do both. Thanks for the help.