How to save on your student loans
It’s no secret that student loans have become a major economic burden. The total student debt of Americans is $1.7 trillion. That’s one reason President Biden announced a public student loan forgiveness program in August.
You can take steps now to reduce your costs under existing programs and practices, regardless if you are eligible for federal forgiveness. And if you’ve benefited from the COVID-19 pandemic payment pause in federal student loan programs, you’re likely aware it ends on December 31, 2022.
That means it’s time to look for savings.
If you currently have a private student loan, the quickest way to save cash now is to refinance. Get started today . by exploring your options.
There are, however, strategies that work for both private and public student loans. Whether you’re looking to take a student loan out for the first time or are seeking ways to lessen your existing debt once payments resume, you have options.
Here’s a look at some of the top ways to save by loan type.
How to save money on private and federal student loans
- Borrow only what you need. It is always a good idea for you to review your long-term budget, but it is especially important if you are just beginning to look into loans. Take a step back, look at what your loan will cover, and don’t borrow more than you need.
- Set up autopay. Federal student loans and most private lenders offer a discount if you set up autopay. Federal loans have a 0. 25% off the interest rate. Private lenders may offer a greater discount. Another bonus: autopay shows good payment history, which helps your credit score.
- Check if interest payments qualify as tax deductible. The Internal Revenue Service (IRS) offers a tool to determine if your student loan interest can be deducted from your taxes. Deductions can be up to $2,500 for loans solely used for education.
- Make extra or higher monthly payments. You can opt to make extra payments or higher payments that are slightly more than your monthly statement. Make sure you specify that the extra should go to the principal portion of your student loan. Payments go to fees, interest, and principal. If you tell the servicer that you want them to be applied towards the principal, this is how extra payments can save you time and interest. To ensure that the extra funds are properly applied, check with your federal student loan servicing agency or private bank or financial institution.
- Check for student aid grants and scholarships. Many grants don’t require repayment. You can also search for scholarships and grants by state, study region, group, or organization.
How to save money on private student loans
- Refinance or consolidate at a lower rate. If you have a good credit score (typically 670 or higher), steady job, money in an emergency savings account and aren’t likely to qualify for federal aid programs, private student loan refinancing may be a good option. Many lenders look for a debt-to-income ratio below 50% to refinance a student loan. It’s easy to refinance your student loan. Speak to a lender today and start saving.
- Shop for low rates. Private lenders offer varying rates so look for the private student loan with the best terms by shopping around. To ensure you get the best student loan for you, do the math for the entire loan term. Compare servicers, rates, and options using the table below.
- Look for loan discounts. Look for discount offers like waiving the loan origination fee and other costs when considering which bank or financial institution may fit your needs. To ensure you are saving money, do the math on both the monthly and total loan payments.
How to save money on federal student loans
- Check for forgiveness, cancellation and discharge options. There are many forgiveness and cancellation programs available, including the one offered by the Biden administration. If you are approved, student loan payments will no longer be necessary, even for those who have served in the military. You may be eligible to have your student loan disbursed if you are permanently disabled and the school where you received your student loan is closed.
- Federal student loan consolidation. Consolidating student loans can save you time and money. Consolidating federal student loans won’t reduce your interest rate. However, it will lock in a fixed rate that ensures stability and doesn’t change your payments. These Direct Consolidation loans could also help you qualify to receive public service loan forgiveness.
- Pay loan interest while still in school. This avoids capitalization (when interest payments are folded into the principal of your student loan, giving you a bigger balance to pay off once your grace period ends). Capitalization means that interest on student loans is paid in interest. This can lead to higher interest payments over the long-term.
- Look carefully at loan repayment plans each year. There are several kinds of repayment plans, including those that lower monthly payments based on income level. You should be aware that interest capitalization can cause your balance to rise quickly and you could end up owing more than the original loan amount.
Don’t forget that different options apply to different loan types – not everything is applicable for both. If you have private student loans, however, you can start the process of lowering payments by refinancing your loans now.
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I have been writing professionally for over 20 years and have a deep understanding of the psychological and emotional elements that affect people. I’m an experienced ghostwriter and editor, as well as an award-winning author of five novels.