Interest only (IO) payments are made when the borrower only pays the interest that has accrued on the principal.  This is typically accrued and calculated on a monthly basis, but may be a different period of time. The principal typically does not grow nor decrease during this period of time. After the term is over, repayment will be required for both principal and interest (P&I). Some private lenders require interest-only payments while a student is enrolled at least half time and most parent private loans require interest only payments at a minimum.
 

If the interest is paid, the borrower will save money because the interest will not be capitalized (added) to the principal.