Student loans are the worst.
Each month, 44 million people cringe as that money comes out of their bank accounts — money they could use to pay other bills, go on vacation, or invest in their future.
If you’re one of them, keep reading.
7 smart ways to save money on your student loans
Whether you’re paying your first student loan bill or your 31st, it’s always a good time to save money on your student loans.
Here are seven clever but simple strategies you might not have considered.
1. Make payments during your grace period
After you graduate from college or drop to less than half time, you don’t need to make payments on your student loans for six months.
That might sound exciting, but taking advantage of your grace period can actually cost you a bundle. If you have subsidized loans, no worries — the government will cover your interest.
But unsubsidized loans will start accruing interest as soon as you get the funds. And while you’re not required to make payments while you’re in school, the interest will continue to add up during that time. So, for the next 10 years, you’ll be making payments on more money than you took out.
To avoid that outcome, pay at least the interest on your student loans during your six-month grace period.
2. Sign up for autopay
When you sign up for autopay with your loan servicer, you might receive a discount on your interest rate — usually to the tune of 0.25 percent. That might not sound like much, but it can add up over a decade.
Say you have $50,000 of loans at an average weighted interest rate of 6.00%. A 0.25 percent discount adds up to $750 by the time you’re done paying.
The other benefit of this strategy: You’ll never have to worry about missing a payment (and incurring late fees).
3. Make more than the minimum payment
I know. I know. How can paying extra on your student loans save you money?
Interest, baby. The quicker you pay off your loans, the less you’ll pay in interest. And it could save you a significant amount in the long run.
Using the example of $50,000 of loans at 6.00% interest — and our student loan prepayment calculator — paying an extra $100 per month would allow you to pay off your loans two years early — and save $3,622 in interest.
4. Consider an income-driven repayment plan
On the other hand, if you’re struggling to make your monthly payments and are in danger of defaulting on your student loans, you should consider an income-driven repayment (IDR) plan.
IDR plans cap your monthly payments at 10 to 15 percent of your discretionary income and extend your repayment term to 20 or 25 years. At that point, your remaining balance is forgiven.
Since you’ll pay more in interest over the lifetime of your loans, this option makes sense only if you can’t afford your payments otherwise.
Let’s go back to the example of $50,000 in loans at 6.00% interest. If you earned $40,000 per year, your payments would drop from $547 to $274. But you’d also end up paying $21,207 more in interest.
Use our income-based repayment calculator to see the numbers for yourself.
5. Look into forgiveness programs
At the moment, IDR programs offer forgiveness after 20 or 25 years. But a few plans offer forgiveness even sooner.
Most of these plans are based on your profession, with the biggest being Public Service Loan Forgiveness (PSLF). Through this program, people who work for a nonprofit or government agency can get their loans forgiven after 10 years of regular monthly payments.
Other programs are available for teachers, nurses, doctors, lawyers, etc. Use the search box above to find programs specific to you.
It’s also worth noting that forgiveness through PSLF and IDR is on the chopping block with the new education reform bill. Current participants will be grandfathered in, so if you want a shot at getting your student loans forgiven, sign up now.
6. Refinance your student loans
For those of you with a high income and strong credit score, refinancing your student loans can save you a lot of money, especially if your loans have a high interest rate.
Let’s say you’re a doctor who racked up $200,000 of student loan debt at a 7.00% interest rate.
Using our refinancing calculator, if you refinanced at 4.00%, your payments would drop by $297 per month — and you’d save $35,672 in interest over 10 years.
When you refinance, however, you lose federal protections such as IDR and PSLF, so take that fact into consideration when you decide if refinancing is right for you.
7. Use the student loan interest deduction
This popular deduction allows you to deduct up to $2,500 of qualifying student loan interest payments. Use our student loan interest deduction calculator to see how much you could save.
It’s not a huge amount, but every little bit helps when it comes to saving money on your student loans.
And by using the seven tips above, you might pay off your student loans faster than you ever thought possible.
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