Student loans are meant to be helpful: You borrow money to access higher education, and that can lead to better job opportunities, which in turn gives you more earning power. But of course, it’s possible to run into problems when you pay back the student loans.
In addition to the sum you borrowed, you will be charged interest by the lender in exchange for letting you take out the loan and pay it back over time. Managing those interest payments well is one of the best ways to pay student loans as cheaply as possible.
You have a few options when it comes to paying student loans, some of which can save you money in the long run. Read on to see which option might work best for you.
- Pay off student loans faster
- Get strategic using the debt avalanche method
- Make payments during the grace period
- Set up autopay from your bank account
- Refinance your loans
- Claim deductions on your taxes
The simplest way to save money when repaying student loans? Pay faster. Get ahead of schedule and send larger payments to your lender. Or you could make half a payment every two weeks instead of a full payment every month, so that you’ll end up sending the equivalent of an extra payment each year.
Of course, you might not have the discretionary income to devote to extra student loan payments. But you do have the power to make extra money on the side to boost your income.
If you need some motivation, take a look at how increasing your payments can pay off student loan debt faster and save you money in interest costs while you’re at it. This student loan prepayment calculator can show you the kind of impact that just a small extra payment can make. Note that if you do pay something extra, make sure those additional payments are applied to the principal rather than the interest, so that you get the most bang for your buck.
If you have multiple loans, the order in which you repay them down can save you money. If you make any payments beyond the monthly minimum, it’s often best to direct it the loan with the highest interest rate first, then the second-highest interest rate next, and so on. This is known as the debt avalanche method.
It saves you money because you significantly reduce the impact of the factor that’s costing you the most: higher interest rates. This tactic could help you repay your debt well ahead of schedule and save the most money possible while doing it.
If you get a jump on your repayment schedule while you’re in school or during your loan’s grace period, you can trim what you owe in total interest over time, saving you money while you repay your loans. If you have subsidized loans, interest usually doesn’t begin to accrue until after your grace period ends. But with unsubsidized loans and private student loans, interest can begin piling up 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 may end up paying interest on that interest later. If you can, try to at least make interest payments during this period — or even full payments on the principal balance, too.
Talk to your loan servicer about earning interest rate reductions. One possible way to do this is to enroll in autopay on your student loans. This means your monthly payments are automatically deducted from your checking account.
In exchange for setting up autopay, many lenders with reward you, usually with a 0.25% interest rate reduction. Another benefit is that you no longer have to worry about remembering to make your payment each month.
Refinancing your student loans can save you significant money if you have strong enough credit to score a lower interest rate (or if you can get a cosigner with strong credit). The results can be dramatic, depending on how high your current interest rate is.
Keep in mind, though, that there are drawbacks to refinancing. Specifically, if you refinance federal loans, you’ll turn them private and lose access to government-provided repayment programs and forgiveness options. Also, if you decide to extend your loan term, then the overall interest cost could grow in time.
However, if you feel confident about your repayment and don’t need those federal loan benefits, you can shop around for a better refinancing rate that can save you money and trim your monthly payment.
Make sure you claim the tax credits and deductions you’re entitled to as someone paying student loans when you file your taxes.
You can generally take a tax deduction for any student loan interest that you paid, up to $2,500 a year from you tax bill this way.
Qualified loans include loans you took to pay approved education expenses only, that were for you, a spouse or a dependent. Any loans from relatives or qualified employer plans that you used for school won’t qualify for this deduction.
The above strategies 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 similar programs that lower your monthly payment — can help ensure you make your payments in full and on time. But they do this by extending the period of time which you need to pay back student loans. While it can help you today, this approach will cost you more money in interest charges over the life of your loan.
Another repayment method that can cost you more than if you stuck to your original payment plan is a direct consolidation loan, at least if you extend your loan term (just as with refinancing). In fact, this move is similar to refinancing, except that you keep your federal protections but don’t get a reduction in interest.
In terms of repayment strategies, the debt snowball method can end up adding to your total lending costs. This tactic prioritizes paying off your smallest loans first in order to motivate yourself. If the small loans have lower interest rates, then you’ll likely pay more than with the debt avalanche method.
Ultimately, any strategy that will get you out of debt and that you can consistently stick to is one worth pursuing.
The information in this article is accurate as of the date of publishing.
Yael Bizouati contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.34%4||Undergrad & Graduate|
|1.97% – 8.54%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
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.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of December 1, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 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 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 2020, 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 10/26/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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.
5 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 11/13/2020 student loan refinancing rates range from 1.97% to 8.54% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.