Making your student loan payments on time comes with many benefits. You might work toward qualifying for forgiveness (for your federal loans) or achieving cosigner release (for your private loans). Along the way, you should see your credit score rise, too.
But you could also receive an actual discount on your debt, simply for paying your bill before it’s due.
Although on-time payment discounts are few and far between, they’re worth a search.
What is an on-time payment discount?
As opposed to a loan feature that you receive automatically upon borrowing, an on-time payment discount is earned. To obtain it, you must make a specified number of consecutive payments on time.
Typically, the discount would arrive in the form of a decreased interest rate.
You don’t have to wonder how much an on-time payment discount would be worth. Say your lender or loan servicer, with whom you have a $30,000 debt to be repaid over 10 years, decreases your rate from 8.00% to 7.50%. That rate reduction would save you $945 in interest — no small chunk of change.
Rate reductions are especially valuable because they’re permanent, allowing you to save even more during your repayment. Plus, if you turned around and applied the $945 to make a lump-sum payment toward your debt, you could shorten your loan term by five months, saving an additional $1,024 of interest from accruing, according to our extra payment calculator.
Where can you find on-time payment discounts?
After the College Cost Reduction and Access Act diverted subsidies away from student loan companies, federal loan servicers and private lenders gradually phased out discounts for prompt payments.
These programs were once quite robust: Federal Stafford Loans, which have been replaced by the federal direct loan program in recent years, used to come with a 2.00% rate decrease following four years of prompt payments. Similarly, the Massachusetts Educational Financing Authority offered borrowers three rate reductions of 0.50% each after timely payments for 24, 36 and 48 months, respectively.
Lenders also offered these discounts in the form of principal balance reductions, account credit, cash and rebates. A rate reduction, however, is the most valuable because it’s a permanent change to your account, resulting in continued savings.
Nowadays, it’s more difficult to find this perk among lenders. MPower Financing is an exception, offering a 0.50% reduction on your interest rate after six months of prompt payments. From your seventh monthly payment on forward, your rate would fall, creating potentially significant savings.
Whether you’re seeking a private student loan or are considering student loan refinancing, ask lenders about whether they offer on-time payment discounts. It could be one factor that helps you choose the best lender for your repayment.
The next best alternatives to on-time payment discounts
Generous on-time payment discounts have slowly been replaced by one-time autopay discounts, among both federal loan servicers and private lenders. If you can’t find a lender offering one, chances are they offer the other.
All nine of the current federal loan servicers offer a 0.25% rate reduction immediately upon enrolling in autopay, and most reputable banks, credit unions and online companies at least match it.
Instead of rewarding you for making payments, setting up autopay ensures you’ll never miss one (as long as you have enough money in your bank account, avoiding overdraft). Typically worth a 0.25% or 0.50% reduction on your fixed or variable interest rate, autopay is a great way to save.
Finally, some private student loan companies offer rate reductions and cash awards for your grade point average and for graduating from your program. Student loan and refinancing companies also provide a similarly sized rate reduction for opening a connected bank account, plus cash for referring a friend.
Ask about lenders’ discounts before you agree to borrow, pitting them against each other to ensure you find the best deal.
Reduce your rate and rack up savings whenever possible
There are plenty of ways for lenders to ding you if your repayment goes awry. The consequences start with late fees and potentially lead to a default, garnished wages and worse.
So when your repayment is going right, on the other hand, you should be rewarded for it.
On-time payment discounts are more difficult to find than they used to be. Still, you can score significant savings through discounts for autopay, good grades, graduating and banking. They’re just as valuable if they reduce your interest rate, even by only a fraction of a percentage point.
As you shop around, put the onus on lenders. Ask about what happens when your payment is late — and what occurs when you’re consistently on time. If you’re unsatisfied with their answer, it might be time to move on to a competing lender.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 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 2.50% APR (with Auto Pay) to 7.27% 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 April 17, 2019, 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 04/17/2019. 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 firstname.lastname@example.org, or call 888-601-2801 for more information on our student 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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed 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.
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.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
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 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|