Updated: Nov 21, 2023
If you’re like most college graduates, chances are you have student loan debt--even with your past efforts to maximize grants, scholarships, and other forms of free financial aid. There’s also a good chance that you’re overwhelmed about repayment. Luckily, there are ways to help you reduce the overall cost of your student loans so you can keep more money in your pocket.
Your grace period is typically a time when you’re not required to make student loan payments. If you’re still in your grace period and can afford to make payments, no matter how small, it’s a good idea to start. Interest continues to accrue during your grace period like it did while you were in school. Making interest payments before your grace period ends can help you avoid or reduce the amount of interest that capitalizes on your student loan when it enters repayment.
The longer you take to pay back your loan, then more you will pay in interest. By choosing the shortest repayment plan, you will reduce the amount of interest you pay over the life of the loan. Your options will vary by loan type, and generally federal student loans have more plans to choose from. Carefully assess your options based on your financial circumstances and be sure your budget can cover the monthly payment.
Your student loan servicer might offer perks like cash rewards or interest rate reductions for automatic payments or on-time payments. While you can use your cash rewards toward a monthly payment, interest reduction programs lower your interest rate, ultimately helping you pay less in interest.
When you enroll in automatic payments, you’re putting your student loan payments on autopilot. Your payments are automatically made from your bank account to your student loan servicer on the same day every month without you having to do it manually. You never have to worry about missing a payment or incurring late fees if your servicer charges them. More importantly, some lenders offer an interest rate discount while enrolled in the program.
Making additional or extra payments on a regular basis, or whenever you can, can help you chip away at your student loan balance more quickly. When you pay more than your monthly minimum or make extra payments, you can reduce the amount of interest you pay in the long run. Plugging your student loan details into an online repayment calculator can show you how much you can save by making additional or extra payments.
Your student loan payment is an essential bill that deserves a line item on your budget, just like your housing payment or utility bill. Paying it on time all the time not only helps you maintain a solid credit rating but it keeps you clear of late fees if your servicer charges them.
If you’re running the numbers and things feel tight, trimming your expenses can create some breathing room and ensures you have enough money in your bank account to avoid bank fees for insufficient funds.
Many employers are contributing money toward their employees’ student loans. If you’ve begun working, it’s a potential employee benefit that could help shave down your student loan debt. If you work in a certain profession, you may also qualify for federal student loan forgiveness, which could reduce your student loan costs.
If you have multiple student loans, you may have various due dates, monthly payments, and interest rates. Consolidating your balances can bring them all under one new loan. The goal is to choose a consolidation loan with a lower interest rate to reduce your overall student loan costs. Keep in mind that when you consolidate, you extend your repayment term, which lowers your monthly payment amount. When you do this, it will take more time to repay your loans and you will pay more in interest over the life of the loan. Since every lender is different, it pays to shop around, compare rates and terms, and read the fine print.