Student loans aren’t inherently bad — you borrowed money to put yourself through higher education, and that can lead to better job opportunities that give you more earning power. However, it’s possible to run into problems when you pay student loans back.
Not only do you need to repay the sum of money you borrowed, but your lender charges you a fee for allowing you to borrow the money and pay it back over time. That, of course, is the interest on your student loans, and it’s the interest that costs you money.
Managing your interest payments is the best way to pay back student loans as cheaply as possible. You have a few options when it comes to paying student loans in such a way that you also save money in the long run, so read on to see which routes work best for you.
Pay student loans faster
The simplest way to pay student loans while also saving money? Pay faster. Get ahead of schedule and send in larger payments, or send in a payment every two weeks instead of every month.
This way is simple, but not necessarily easy if you don’t have the discretionary income to devote to extra student loan payments. Even if you don’t have the extra money now, you do have the power to make more money on the side to boost your income. Here’s how you can get started with earning more money.
If you need some motivation, take a look at how increasing your payments can pay student loan debt off faster — and save you money in interest while you’re at it. This prepayment calculator can show you the kind of impact just an extra couple hundred dollars per month can make.
Once you start making extra student loan payments and accelerating the rate at which you’re knocking out your debt, make sure those additional payments are applied correctly to get the most bang for your buck.
Get strategic with the debt avalanche
If you have multiple loans, the order in which you repay them can save you money. Pay student loan debt in order, starting with the loan with the highest interest rate first, then the second-highest interest rate next, and so on until the last debt you tackle is the one with the lowest interest rate. This is known as the debt avalanche.
It saves you money because you eliminate the factor that’s costing you the most: higher interest rates. If you can combine this strategy with making extra payments on your student loans, you’ll repay your debt well ahead of schedule and save the most money possible while doing it.
Make payments during the grace period
You can take a few small actions to trim down what you owe in interest, and therefore save money while you repay your loans. If you have subsidized Stafford loans, interest begins to accrue after your grace period ends (if your loan was disbursed before July 1, 2012). With unsubsidized Stafford loans, interest starts accruing immediately after graduation, regardless of your grace period. (If you have a private loan, interest will likely begin to accrue as soon as the loan is disbursed.)
If you don’t make any payments because you want to enjoy the grace period, be aware that you’ll have to pay interest on that interest later! Go ahead and at least make interest payments during this period, but it’s even better if you can make payments on the principle balance, too.
Set up autopay
Talk to your loan servicer about earning interest rate reductions. One possible way to do this is to set up autopay on your student loans. This means payments are automatically deducted from your checking account. In exchange for setting up autopay, lenders usually reward you with a .25% interest rate reduction for taking this action, which helps you save money. You also benefit because you no longer have to worry about remembering to make your payment each month. It’s automatic!
Claim deductions on your taxes
Did you know you can actually get a kickback for making interest payments on your student loans? It’s true, so long as you claim the credits and deductions you’re entitled to as someone paying student loans when you file your taxes.
You can deduct student loan interest that you paid from your taxes, regardless of what repayment plan you’re on. Doing so can help you reduce the amount of income tax you owe by up to $2,500.
Qualified loans include loans you took to pay approved education expenses only, that were for you, a spouse, or a dependent. Qualified education expenses include tuition and fees, room and board, and textbooks, supplies, and other necessary expenses like transportation. Any loans from relatives or qualified employer plans that you used for school won’t count towards this deduction.
You should also be aware of the income requirements needed to claim this deduction. Your adjusted gross income can’t be more than $80,000 (or $160,000 when you file jointly). You can use this interest deduction calculator to determine if you’re eligible to file for a deduction, and what your benefit could be.
You can use the Student Loan Interest Deduction Worksheet from IRS Form 1040, Form 1040A, or Form 1040NR when you file your taxes. To learn more and to get copies of the forms you need, check out this comprehensive guide on student loan interest deductions from the IRS.
What doesn’t save you money when you repay your loans
The strategies above will help you repay your loans while saving money, but not all repayment methods will do this for you. Strategies designed to help you manage your debt, like income-based repayment plans or repayment plans that lower your monthly payment, can help ensure you make your payments in full and on time. But they do this by lowering your monthly payment and extending the period of time which you need to pay back student loans. While it can help you today, this approach will cost you money over the life of your loan because you end up paying more in interest.
Other repayment methods that can cost you more than sticking to the original payment plan include consolidation and the debt snowball. With consolidation, you could end up paying more if your loan term is dramatically extended. If you use the debt snowball payment method, you prioritize paying off your debts based on their balance instead of interest rate.
Ultimately, any strategy that will get you out of debt and that you can consistently stick to is a solid one worth pursuing. But if you want to optimize to pay student loans while also saving money, choose a way to repay your debt that doesn’t leave you paying more interest over time.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
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 3.50% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.49% 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 email@example.com, 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 2.48% effective April 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.49% – 7.27%1||Undergrad & Graduate|
|2.49% – 6.65%3||Undergrad & Graduate|
|2.49% – 7.41%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.49% – 7.11%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|