Automatic payment can be an effective tool for managing your finances and ensuring you don’t miss a payment.
But is can be especially helpful for keeping your student loan repayment on track.
Nearly two in five (or 37 percent) of borrowers with student loans had a late payment in the past year, according to a report from FINRA Investor Education Foundation.
And late or missed student loan payments can have pretty serious consequences. These can range from late fees to damaged credit or even wage garnishment.
What are automatic student loan payments?
If you’re looking into automating student loan payments, you should know there’s more than one way to do it.
The three main ways of using automating payments are:
- Monthly withdrawals by your loan servicer
- Sending funds through your bank’s online bill pay tool
- Paying student loans with a credit card
Each automatic payment method has its potential benefits and drawbacks which are listed below. Make sure you consider all of them before deciding on an option that’s the best fit for you.
1. Automatic withdrawals by the lender
With this method of automatic payments, you give the details of your bank account to your loan servicer. By doing so, you authorize the lender to withdraw your student loan payment from your account each month.
By setting up payments with this method, you ensure your payments are always on time and you’ll never miss one.
What’s more, lenders often grant a discount on your student loan interest rate for setting up automatic payments. With a lower interest rate, you’ll accrue and pay less interest, plus save money. Talk about a win-win.
There are a few downsides to this method, however. Since you aren’t controlling the payments, you have less flexibility and control over them.
And once you’ve signed up for automatic payments, it can be a bit of a hassle to stop them. If you decide to end them, expect it to take about a month for this change to go into effect in your lender’s payment system.
If you’re interested in saving on interest and can keep your bank account well-funded to cover payments, enrolling in automatic student loan payments could be the best way to go.
2. Online bill pay from your bank
Another common method of paying student loans is setting up automatic payments from a bank account through online bill pay.
Banks typically offer this feature to customers who log in to their accounts online or through a mobile app. From there, you can enter your lender as a payee and set up a monthly, automatic payment to the lender.
The benefit to this method is that it gives you more control over your money. You won’t have to give the lender access to your bank account and you’ll have the ability to update or change your payment settings at any time.
Additionally, you could set-up alerts to get a text or email reminding you when your student loan payment is due, according to Money Girl Laura Adams.
A potential downside is that these types of payments might take a little longer to process. Usually, your bank will print an authorized check and send it to your payee by mail. To avoid late payments, set your online bill payment a few days before your lender’s due date.
Online bill pay can be the right choice for you if you’re more comfortable staying in control of your payments. It’s also the easiest method to use if you want to pay more than your minimum amount on your student loans each month.
3. Credit card bill pay
While most federal student loan servicers don’t accept payments via credit card, some private lenders or refinance servicers do.
If your student loan servicer does accept credit card payments, these will likely be set up through automatic withdrawals. You can also check if your credit card issuer offers a bill pay feature if you prefer that method.
There are some potential benefits to paying student loans with a credit card. For instance, if you pay with a rewards card, you might earn points or miles for your student loan payments.
It can also provide a little more flexibility for repayment. Since the payment is made against your line of credit, it won’t come due for another payment cycle. This could give you some wiggle room if you have a month where other expenses come up.
There are some major downsides to paying with a credit card, however. Credit card companies charge a processing fee to payees, which is why many lenders won’t accept this type of payment. These fees often offset any rewards you’re earning with your credit card in the first place.
Credit cards are also high-interest debt. So if you fail to pay the balance off in full each month, you’ll get hit with a big interest charge.
And if you’re using credit cards to cover student loan payments because you can’t afford them, it can quickly turn a bad debt situation much, much worse.
Should I use auto-pay for my student loans?
Overall, setting up automatic payments can help you keep up with payments and free up some mental energy for other financial tasks.
But the method you choose can either help or hurt your student loan repayment goals. Be sure to consider each auto-pay method and take the time to understand how they could affect your loans before signing up for one.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|