6 Ways to Pay Student Loans That Will Also Save You Money

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Ways to Pay Student Loans
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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.

  1. Pay off student loans faster
  2. Get strategic using the debt avalanche method
  3. Make payments during the grace period
  4. Set up autopay from your bank account
  5. Refinance your loans
  6. Claim deductions on your taxes

Here’s what doesn’t save you money when you repay your loans

1. Pay off student loans faster

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.

2. Get strategic with the debt avalanche method

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.

3. Make payments during the grace period

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.

4. Set up autopay from your bank account

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.

5. Refinance your loans

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.

6. Claim deductions on your taxes

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.

Here’s what doesn’t save you money when you repay your loans

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!
LenderVariable APREligible Degrees 
1.99% – 5.64%1Undergrad
& Graduate

Visit Earnest

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.09%3Undergrad
& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
& Graduate

Visit Splash

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.41%5Undergrad
& Graduate

Visit CommonBond

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

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 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 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 7/31/2020. 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.


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.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

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 September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 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 September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective August 10, 2020.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.