For many college grads, student loans are a fact of life. While you may wish that it wasn’t the case, student loans are simply something that you have to include on your monthly budget, along with your internet bill, your housing payment and other necessities. Undoubtedly, student loans can be painful — but there are ways that you can save money on them with relatively minimal effort.
Get Auto-Payments Set Up
One of the easiest ways that you can save money on your student loans is also one of the best ways to make sure that you never miss a payment. Many private student loan servicers offer interest rate reductions for borrowers who do two simple things: set up electronic funds transfer (EFT) and make a certain number of on-time payments. By doing both together, you can shave off as much as 0.50 percent from your interest rate, which can save you a significant amount of money on your loans over time. The way it works is simple. Using your online banking service, input your student loan account information to set up autopay. Once that is established, you will automatically get an interest rate deduction, which is typically .25 percent. Then, once you have made a predetermined number of on-time payments — typically 24 to 36 — you will get another interest rate reduction. It’s the easiest possible way to save yourself hundreds or even thousands of dollars on interest rate over the life of your loans.
Make Payments During College and the Grace Period
Obviously, if you’re already paying on your student loans, this ship has sailed…but if you’re still in school or have just graduated, you can take advantage of this money-saving tip. Other than subsidized federal student loans, interest will accrue on your federal and private student loans while you are in school and in the 6-month period after you graduate, known as the grace period. This interest will capitalize at the end of the grace period, and will be added to the principal of your loan — which can substantially increase the total amount that you owe. Making interest-only payments during college and/or the grace period can significantly reduce your total student loan payments over time. It may seem impossible to make student loan payments while you are in school, but look at it this way: you will be paying it either way. If you wait until later, you will simply be paying intereston top of the interest. Making relatively small payments during college and/or during the grace period can save you a fair amount of money on your student loans overall.
Make Extra Payments
Another easy way to save money on student loans is by putting a little extra money each month towards your student loans each month. Whether it’s an extra $50 or a full payment, additional funds put towards your student loans can help you pay them off more quickly — and get you towards your goal of being debt-free. The more quickly you pay off your student loans, the less money you will pay in interest — and the more you will save.
Consolidate your Student Loans
If you have private student loans, refinancing them could save you significant amounts of money through obtaining lower or fixed interest rates. Refinancing works by using a new loan to pay off other student loans — either private student loans or a combination of private and federal. The main benefit of refinancing is using an improved credit score to obtain a lower interest rate, or a fixed interest rate if you currently have a variable interest rate student loan. If you qualify for a refinanced student loan, you could save thousands of dollars in interest on your student loan. Just be sure to think carefully before you decide to refinance federal student loans alone with your private student loans, as doing so will mean giving up the benefits of private student loans. Refinancing is generally only available to borrowers with credit scores of at least 660, a steady income and a history of making on-time payments on their student loans. It can be done directly through private lenders, such as banks, after comparing information through websites such as LendEDU.
Take Advantage of Employer Benefits
While still a small percentage of the overall marketplace, more employers are offering student loan repayment as a benefit than ever before. If your employer offers this benefit, taking advantage of it could help you save significant cash on your student loans. Typically, these programs offer a relatively small monthly amount of $100 — $200 to put towards student loans, which is sent directly to the employee’s student loan servicer. However, as with extra payments, these amounts can help pay off student loans more quickly — and can help you save a lot of money on student loans.