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**