The average college graduate finishes school with nearly $40,000 in student loan debt. As tuition rates continue to skyrocket, the student loan crisis will only get worse.
If you haven’t started college yet, I highly recommend paying for college without loans. You may think loans are your only option, but believe it or not, there are other ways to pay for school.
For those of us who already have student loans, here are five ways to save money on those loans.a
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Pay Interest During the Grace Period
Do you ever wonder why your student loan payments seem so much higher than you expected them to be? Interest is the culprit.
Interest on student loans compounds (which means that the interest itself collects interest), and this compounding begins while you are still in school.
Making interest payments while you’re still in college and/or during your six month grace period after graduation can help to keep your monthly payments from getting too crazy.
Set Up Auto Debit
Many student loan servicers offer an interest rate reduction if you choose to have your monthly bill automatically taken from your bank account rather than sending in a check.
It probably will be a small amount, but a small change in your interest rate can make a big difference over time. It also simplifies the process – you don’t need to deal with being charged a late fee because you forgot to send in your payment on time one month.
Choose the Best Repayment Plan
There are numerous different repayment options for student loans, but they are not all created equal. I highly recommend choosing the shortest term possible (typically 10 years). If you pay off your loans over 15-25 years, you will pay much more in interest.
I briefly considered switching to a 25 year repayment plan on my student loans until I realized that I would end up paying over $100,000 in interest alone.
It’s not worth it! Some plans (income-based repayment, for example) are appealing because they offer forgiveness of the remaining balance after many years (typically 25) of faithful payments.
Keep in mind that the forgiven amount may be taxed as income when you file your taxes. If you have a large amount (say, $100,000) forgiven, you could be facing a hefty tax bill (around $25,000).
If you can’t afford to make the minimum payments on a 10 year plan, you probably won’t have $25,000 lying around.
Refinance at a Lower Interest Rate
One of the best ways to save money on your loans is to refinance them at a lower interest rate. Refinancing companies will buy your loans from your current servicer (Sallie Mae, etc.) and you then pay them instead of Sallie Mae.
If you’re interested in refinancing, I highly recommend checking out LendEDU. LendEDU is a marketplace for student loan refinancing and other financial products.
While many student loans have interest rates around 6%, LendEDU offers interest rates as low as 3.09%. Find out what type of rate you could get just by answering a few quick questions.
Make Extra Payments
My hubby and I are currently working on the debt snowball on our student loans. With the debt snowball, you pay the minimum on all of your loans and put extra toward the loan with the smallest balance.
Once that loan is paid off in full, you move on to the next smallest loan, and then you repeat this process until all of your debt is paid off.
My hubby and I started with a grand total of $117,000 in student loan debt and we are currently down to $35,000. Paying our loans off this quickly will save us over $50,000 in interest.
When we began doing this, my monthly payment was $816…now it’s only $150, which frees up more money to go toward extra payments.
Save Money on Student Loans
When you think about your student loans do you feel anxious, hopeless, or trapped? Student loans can be a nightmare.
Make them more bearable by making interest payments early, setting up auto debit, choosing the best repayment plan for your situation, refinancing them at a lower interest rate, and/or paying them off as quickly as possible.
You could save tens of thousands of dollars by doing any of these five things.
Who wouldn’t love to save that kind of money?!