Aug 12 · 3 min read
Looking to save on the cost of your student loans? Check our comparison tools for the best interest rates!
If you’re looking to repay the least amount of money on your student loan debt, you’ll want to get rid of it as fast as you can . A great way to do that is by lowering the interest rate of your student loans.
Because interest on student loans accrues daily, even the smallest reductions in your interest rate can lead to you saving quite a bit of money. Let’s get whyze and look at two simple strategies that will help you lower your student loan interest rate and keep more of your cash in your pockets.
Automating your payments is an easy way to reduce your student loan interest rates. Typically, lenders of both federal and private student loans will reduce your interest rates by 0.25% if you make your student loan payments automatic.
Although a reduction of 0.25% may not seem like a lot, it can end up saving you a decent amount of money over time.
As an example, let’s say you have $30,000 in student loan debt with an interest rate of 6%. If you don’t automate your monthly payments and pay on this loan for 15 years, you will end up paying a total of $45,568.27.
If instead, you automate your monthly payments to get an interest rate of 5.75%, you will end up paying $44,842.14 instead. This will save you over $700!
Your potential money saved gets even larger if you’re planning to pay off your student loans in 25 years instead. Using the same terms of the previous example, you’ll save over $1,300 if you automate your payments.
While these savings aren’t astronomical, it’s money that you could be using for a vacation, investing, or starting a new savings account!
Another way to lower your student loan interest rate is by refinancing your federal or private student loans. In a nutshell, refinancing your student loans means a private lender will pay off your existing student loans and replace them with a single loan that has a new interest rate and repayment schedule . Once this happens, you’ll make your student loan payments to the new lender on that single loan.
To actually save money on your student loans through refinancing, you’ll want to make sure the interest rate on your new loan is lower than your current ones. You will also want to make sure that your repayment schedule didn’t get significantly longer since the longer you pay on student loans, the more money you lose.
As an example, a $30,000 private student loan with an interest rate of 7% will cost you $11,799.05 in interest over 10 years. If you refinanced this loan to get a lower interest rate of 6%, you’d only pay $9,967.38 in interest over that same time period. That’s almost $2,000 saved!
While this sounds like a great opportunity, there are some pitfalls with refinancing. Not all borrowers will qualify to receive a lower interest rate than they already have. Typically, borrowers will need good credit and a certain level of income to receive these low rates.
Student loan refinancing providers also tend to offer both variable and fixed rates. While the variable rates offered to you might be lower than the fixed rates offered, they have the ability to rise over time. Make sure to be whyze and keep this in mind when deciding to refinance your student loans with a fixed or variable rate.
Since student loan refinancing is offered by private lenders, you will also lose the option to postpone your payments or enroll in income-driven repayment plans if times get rough financially.
Ultimately, lowering your interest rates on your student loans as soon as you can, will typically save you some money. Make sure to automate your payments if your lender allows it and look into student loan refinancing if it makes sense for your situation. Remember, refinancing your student loans has the ability to save you money, but you’ll want to make sure you are aware of variable interest rates and the fact that you will lose repayment benefits of federal student loans.