The average college student graduates with $25,000 in student loan debt. Many more students have higher balances than this.
If you are repaying your student loans, there are several strategies you can utilize to pay less in student loan interest. Consider the following:
- Automate your payments. If you have direct student loans, automate your payment to come from your checking account for a set amount on a set date, and you will get .25% off your interest rate.
- Pay as quickly as you can. Direct loans offer many different payment plans. The one that will get you out of debt most quickly with the least amount of interest paid out of pocket is the standard repayment plan that allows you to pay off your loans within 10 years. The other repayment plans can stretch your payments over 20 to 25 years. Yes, that makes payments more affordable, but you also pay a great deal more in interest, sometimes almost as much as the principal itself.
- Consolidate your loans. If you have a high interest rate student loan, consider consolidating all of your loans. If you take this option, you must be careful because you are only allowed to consolidate once. Consolidation will give you one payment a month instead of several, if you have several different student loans. Your overall payment may also be lower than you were paying before you consolidated. Usually, consolidation is the smart option, but if you have low interest student loans and consolidating would cause you to have a higher interest rate, you may want to avoid it.
- Transfer some of your balance to a zero APR credit card. Admittedly, this is a risky move, but if you have a zero percent APR credit card, you may want to transfer some of your student loan balance to the card. Keep in mind that most credit cards have 0% APR for a limited time, often 12 months, so don’t transfer more than you can reasonably pay off in 12 months. Also, be aware of the risks—if you lose your job or experience some other type of hardship, you can always defer your student loans, but you cannot defer your credit card payments. You must make your minimum credit card payment every month or risk affecting your credit score. In addition, if you misjudge and are unable to pay off the credit card balance before the 0% APR expires, you will have to pay at the higher interest rate, which is often over 12%.
- Pay the interest on unsubsidized loans while still in college. Subsidized loans pay the interest for you while you are in college; however, if you have an unsubsidized loan, interest will accrue while you are in school. When you graduate and begin repayment, you may have accrued from several hundred to several thousand dollars in interest depending on the size of your loans. Your payment and interest will then be based on the total amount of your loan including principal and accrued interest. If you instead pay the interest in school, you can save yourself paying more interest throughout the life of the loan.
More and more students are relying on student loans to get through college, and the payments can put a serious financial strain on your budget. With careful planning, you may be able to save some money on the interest you pay, which will save you money overall.
**Photo by watchingfrogsboil**
{ 7 comments… read them below or add one }
Fantastic content to say the least. It’s been said, where there is a will there is a way. Hence there are several ways of saving interest on student loan like Graduation Rewards, Rate Reductions, Consolidation, etc. It’s better if we plan from today to have a hassle free future tomorrow.
Andrea Jones
My wife and I just had our first child, and we have been laboring over this decision. I think we have decided to hold off on a 529 until we get 1 of our 3 student loans paid…at that point we would take the money we are used to putting toward the loan into a 529. We weren’t quite sure how to feel about delaying her college savings, but we think we can make up for it in the long-run. We saw an illustration that showed putting $100 per month into a 529 for 18 years would have nearly the same balance as putting $200 per month in for 12 years. Our goal is to get one of our loans paid off in 6 years which would free up $250 per month…then when the 2nd loan is paid off a few years after that we would have even more available to dump in. It just didn’t make sense to put money towards her education, when we haven’t even paid ours off yet.
Yes they are same as taking care of any other loans. The best advice is to payoff as quickly as possible.
I graduated with around $36,000 in debt, and did some of the things you discussed. I automated payments from the beginning, and after 36 months of consecutive payments they took 1% off my interest rate! That was awesome. Though then my rate was really low–1.65%. I also consolidated when low rates became available in the summer of 2005 after graduating. But I did not consolidate all of the loans; there were two private loans with high interest rates that would have brought the interest rates up on the rest of the consolidate lump sum. So I just kept those out and paid them off much more quickly.
P.S. Sorry I have not been around much–I have been sick. But feeling better now!
Regarding Number 4, I would add that if you have a private student loan, check the interest rate. It may be higher than a credit card interest rate, in which case, you really have nothing to lose by transferring your student loans.
I was able to automate and consolidate about 9 years ago when interest rates were great – 2.8%.
The last of our loans will be paid off in about 4-5 months!
I would add… (if you have children), after your student loans are paid off, divert that money into college savings (such as 529) plans so that your kids won’t have to suffer through student loan payments like you did. Kind of a pay-it-forward mentality.
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