After exhausting scholarships, grants, and federal aid, student loans can fill the gap and allow students to pay for college. Many students would never be able to realize their dream of getting a higher education without student loans. However, the thought of the student loan interest you have to pay on any money you borrow can be very disheartening. So let’s go over how you can lower the total cost of your student loan.
How Student Loan Interest Works
When you borrow money for your college education, whether from the federal government or a private lender, you get a grace period during which time you are not expected to make any payments. If you graduate on time, your grace period will end about 6 months after your graduation date. You will have to start paying back the loan after this.
Even though you do not need to start paying back the loan until after you graduate, the interest on your loan starts accruing from the day you receive the money till the time you finish paying off the loan completely. You may not realize it at the time of taking the loan, but this accrued interest can add up to a considerable amount over the life of your loan.
Fortunately there are a few things you can do to lower the overall cost of your loan.
Sign Up For Auto-Pay
With auto-pay your monthly payments are made directly from your bank to the lender on a pre-set date. Because the lender is guaranteed that they will receive their payments on time through auto-pay, they usually reward borrowers by offering a reduction in the interest rate. Even the smallest student loan interest rate reduction can make a difference to the overall cost of your loan. In addition to saving money, you also do not have to worry about missing payments.
Start Making Payments While You Are Still In School
Paying back small amounts whenever you have extra funds can go a long way in lowering the overall cost of your student loan. The key is to instruct the lender to put the advance payments towards the principal amount, not the interest. The lower the principal amount, the lower the interest that accrues on it.
Opt For a Shorter Repayment Term
The only way to shorten your repayment term is by making higher monthly payments. If your monthly income allows it, you should choose to make higher monthly payments and shorten your repayment term. You may have to sacrifice a few luxuries in order to be able to do this, but it is well worth it just to pay off your debts early. Not only will it save you money in the long run, but you will also be debt-free faster. Nothing can compare with the relief you will feel when you have no more debt and can then do whatever you please with your money.