As tuition fees continue to rise, students who entered school in 2020-2021 paid the most for tuition, according to CollegeBoard. The average four-year public tuition was $ 10,560 in the 1920s-21st years.
Compared to 2011-2012, which was only $ 8,244, that’s an increase of $ 2,316. And according to the latest debt statistics, the average student loan debt for undergraduate degrees was $ 28,800. Anyone who has attended school in the past decade will be gifted thousands of dollars in student loans by the time they graduate.
While the hard facts paint a bleak picture, there are ways to save money on your student loans. Of course, the additional payment of the principal will help you save on interest costs. But what if you don’t have room in the budget to devote more money to student loan payments every month?
It turns out that you may still be able to save interest on your student loan even if you currently cannot make additional principal payments. Here are two easy ways to save interest on your student loans, regardless of whether they are government or private loans.
How to save interest on your federal student loans
Federal student loans offer a special discount when your payment is debited by direct debit. This means that the credit service provider will collect the monthly payment directly from your bank account.
How much do you save on access to your bank account? Generally, 0.25% will be deducted from your interest rate. When you have a rate of 5.05% it drops to 4.80%.
You probably think that 0.25% isn’t much, and it’s even worth it. Before we get into that question, remember that with automatic payments, you don’t have to worry about a default payment and incurring fees. If you make your payment on time every time, you save on fees in addition to your price reduction.
Which loans are eligible for the interest rate cut?
The Department of Education says all direct loans are automatically eligible for a 0.25% autopay discount. But some of the state student loan service providers may offer discounts on automatic payments. To determine if your loan is eligible for the discount, check with your servicer.
Now back to our question, how much you save with 0.25%. Here are some numbers for a bachelor’s degree in repayment status calculated using the federal student loan calculator:
If the 0.25% discount is applied, the rate drops to 4.80%.
The interest savings over the life of this loan amount to $ 684.85. On a monthly basis, you save just $ 3.80, which equates to $ 45.66 per year.
It doesn’t seem like much, but it’s money that is no longer vanishing into thin air. Considering the money you wouldn’t have had without the discount, think of it as a free sundae of coffee or ice cream every month.
How to save interest on your private student loan
Private student loans are different from state student loans. While federal loans have legal restrictions and come with fixed interest rates. The terms and conditions for personal loans are set by the lender.
Private lenders are banks and credit unions. The interest rates on personal loans can be higher than those on federal loans. And the prices can be variable or fixed.
While personal loans can have a higher interest rate than federal loans, you can still save on your personal loan by refinancing. Refinancing allows you to set up new terms with a lower interest rate. Most private lenders, as well as federal credit service providers, grant a discount of 0.25% for car payments.
Here are some companies that can refinance a private student loan:
How much can you save by refinancing?
With the student loan calculator provided by SoFi, we can get an estimate of the monthly and total savings. A $ 29,000 5.05% loan with 110 months remaining maturity that is 3.69% -5.87% refinanced will cut the monthly payment by $ 10 to $ 41 per month and save $ 1,565 over the life of the Loan. Of course, you should make sure that the rate you are quoting is below 5.05%.
Government or private, there are easy ways to save interest on your student loans without increasing your monthly payment. One of the most common is setting up automatic payments. This can bring you a discount of 0.25%.
And if you have personal loans, you should check to see if you can refinance yourself at a lower interest rate. Consider soliciting bids from any of the companies listed above. Or for even more options, check out our top 10 student loan refinancing companies.