Most graduates in the US take their first step into their careers weighted down by an average student loan debt of $37,113, which they can take 20 years to pay off. So, it is no wonder that you are looking for ways to save on your student loan!
Luckily, there is a lot that you can do to reduce this burden and walk into the professional environment with the confidence of actively working towards building long-term wealth. Here is what you need to know about student loans that can help you save a fortune.
There Are Student Loan Discounts Available – Take Advantage of Them!
Student loans are a powerful tool to help you pursue your education – and lenders often keep in mind the borrower’s goal. That is why many private student loan providers offer significant discounts that are worth taking advantage of.
If you benefit from a predictable and reliable income source, you might opt for AutoPay – also known as Auto-Debit. This recurring form of payment allows the lender to automatically charge a borrower’s bank account and grants some benefits such as 0.25-0.50% interest rate reductions and cash-back rewards.
If you have built healthy financial habits as a student, have a good credit score, and are never late with payments, you might also benefit from additional discounts and rebates.
Shop Around For The Best Rewards and Interest Rates
After the government-sponsored 0% interest rates Covid-19 relief ends in May 2022, federal student loans come with a 3.73% interest rate for undergraduates, and 5.28% for graduates.
However, if you are also looking to take advantage of the student loans offered by private lenders, it is recommendable to shop around for the ones that offer the lowest interest rates. These will vary on a case-by-case basis and will depend on your credit score and job history.
Keep Interest Capitalization At Bay By Paying It In-School and During Grace Periods
One of the biggest costs associated with student loans is interest – especially the one you are not paying while you are still at school or during the grace period. Unpaid interest is capitalized, which means that it is added to the loan balance, thus increasing the amount you owe.
While you might not start repaying your loan until after you have graduated and secured a job, you should consider keeping up with accrued interest repayments from day one, which will help you keep these costs down.
Before You Take Out a Loan, Figure Out Roughly What You’ll Be Paying Back Monthly
There are two main ways to save money on your student loan. You can keep the costs of debt down by shortening the length of your agreement and repaying larger amounts each month. Or, you can keep monthly costs low by increasing the life of the loan.
Unfortunately, these strategies are conflicting, and there is no “one-size-fits-all” solution to figure out what is most convenient in your specific situation.
However, using a student loan payment calculator and figuring out what you will be repaying before taking out a loan can help you find the right loan life, rates, and terms to keep costs down.
Accelerate Repayments and Access Lower Interest Rates Through Refinance
One of the greatest benefits of opting for a student loan to finance your education is that there are no penalties for prepayments. This means that if your salary has increased or you benefit from other financial help, you can repay your student loan earlier than planned, which can reduce the interest you’ll pay on it.
Another option is to refinance your student loan to take advantage of lower interest rates and better terms – especially if you have been building your credit score.
Extra tip: if you have multiple loans, consider repaying the ones with the highest interest rates early to keep the cost of debt to a minimum.
Know How Much You Really Need to Borrow
Federal and private student loans are the most popular way to finance your higher education. However, it is important to keep debt down by only borrowing what you really need.
This means making the most of your savings, grants, scholarships, and need-based aids. While the temptation to borrow the maximum amount available to you can be great, focus on just what you need.