If you’re a student, you might be able to take advantage of a little-known student loan hack. By enrolling in auto-debit rate discounts even before graduating, you could get a student loan discount while still in school.
Student loan servicers often offer an interest rate discount (typically 0.25%) as an incentive for borrowers to enroll in automatic payments. The borrower provides their bank account information, and the loan servicer automatically withdraws funds from the account each month to cover the loan payment.
For many with student debt, claiming this interest rebate won’t occur to them until their loan enters repayment, which is typically six months after their graduation date.
Yet with unsubsidized federal student loans, interest starts accruing as soon as funds are paid out, even though repayment could still be years away. If an interest rate discount is applied to the debt before graduation, less interest will be charged on the principal and the borrower will save.
Some student loan servicers allow students to qualify for a rate discount by setting up automatic payments before they graduate. Here’s how to do it.
See if your servicer allows automatic payments before graduation
First, you’ll need to find out if your loan servicer offers this feature to students who are still in school. Student loan servicers’ policies vary, so check with yours to verify its auto-pay discounts.
Many servicers’ websites outline their student loan interest discount for automatic payments. However, you might need to contact the company for full details on how these are earned and applied to student loans while you’re still attending school.
If your loan servicer offers this feature, you can set up automatic payments by providing the servicer with your bank account number and other information. They will verify the information and then apply the student loan discount to your debts.
Servicers offering a student loan discount for automatic payments
Two popular student loan servicers that offer student loan rate discounts with automatic payments include Great Lakes and Sallie Mae.
Borrowers with federal loans serviced by Great Lakes “can set up Auto Pay at any time,” says Brett Lindquist, the loan servicer’s Chief Marketing and Sales Officer. “However, per federal regulations, the 0.25% interest rate reduction won’t apply until you graduate or leave school and your loans enter repayment.”
However, you don’t need to wait to start making payments on your loans. “Paying even a small amount each month can make a big difference,” Lindquist says. “It not only reduces your principal, but it also reduces the amount of interest that accrues on your unsubsidized loans and eventually capitalizes.”
Student debts serviced by Sallie Mae also offer the ability to qualify for a rate discount if the borrower has begun making payments. “Students who have signed up to make monthly payments while in school may enroll in auto debit,” a Sallie Mae spokesperson confirmed via Twitter.
With the combination of early student loan payments and a discounted interest rate, these students will be far ahead of the curve when they graduate.
How an interest discount translates to savings
Getting this student loan discount while you’re still a student can save on interest. But how much difference does 0.25% really make? This example might illustrate what kind of benefits students can expect.
If your student loan service allows you to set up automatic payments in school, even a monthly check of $10 could qualify you for this benefit.
Assuming a student borrows $10,000 a year in unsubsidized federal loans to earn a degree in four years, he would have a principal of $40,000. But with interest figured in, his balance will actually a bit higher at graduation.
For example, 6.25% interest on a $10,000 annual disbursement will accrue $6,653 in interest over four years. If a 0.25% interest rate discount and monthly payments of $10 are made from the beginning, however, the accrued interest drops by more than $300.
This, combined with the $10 monthly contributions, will result in student loans that are over $800 lower upon graduation.
Even if you don’t opt for early repayment, you should still enroll now to ensure you get the full benefit of the interest rate discount after graduation. This example from Great Lakes shows how much it can save you.
With the combined interest savings and one less payment, the interest rate reduction adds up to savings of $584.49.
For current college students, it’s worth their time to check if their loan servicer will grant them an early interest rate discount for making automatic payments while still in school. With a discounted student loan rate, loans will accrue less interest and students will graduate with a lower student loan balance to tackle.
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|