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The average cost of college has steadily increased over the last 20 years and, as a result, more and more students are graduating with debt.
Today, student loan debt is the second highest form of consumer debt in the United States (trailing only mortgages) and though escaping it completely may not be possible, there are ways to save money on repayment.
On this page:
- Make Extra Payments When You Get Extra Money
- Make More Than the Minimum Payments
- Refinance Your Student Loans
- Apply for Loan Forgiveness
- Alternatives to Consider
Make Extra Payments When You Get Extra Money
Set monthly payments can certainly help you keep your debt under control, but that doesn’t mean you need to limit your efforts to 12 equal payments a year.
Paying more can lower your principal balance, which means your loan will accrue less interest. Birthday cards, tax returns, lucky lottery tickets, or a healthier than normal bank balance can all translate to extra loan payments that can lead to big savings in the long run.
A LendEDU study found that over half of borrowers who were able to pay off their student loans in one to five years made at least one lump sum payment of at least $5,000.
Just how much can this strategy save you? Check out our Student Loan Prepayment & Payoff Calculator to find out for yourself.
Make More Than the Minimum Payments
Much like an extra loan payment can decrease the amount of interest paid over time and help you pay off your loan faster, paying more than the minimum payment can also help you pay off your student debt early.
When you make a payment larger than the required minimum, you will pay down an extra portion of your principal balance, meaning less interest will accrue the next time around.
If you have money for extra payments or payments over the minimum, you will need to decide which student loans to put it towards. Typically, you will want to put the extra money towards your loans with the highest interest rate as these “cost” the most, but you can check out our Which Student Loans to Pay Off First Guide to learn what makes the most sense for you.
Refinance Your Student Loans
Refinancing your student loans may represent another way to save money — in some cases, several thousands of dollars. This is particularly true if you can access lower interest rates through your refinancing efforts.
For some, that lower rate will be the natural product of a competitive or borrower-friendly lending market, while others may find that their financial circumstances, particularly their credit history or income, make them eligible for lower interest rates.
While refinancing may be the right option for some, it’s not a decision to make hastily. In some cases, refinancing your loans will lead to lower monthly payments, but because of extended repayment terms, you may end up paying more.
Additionally, federal student loan borrowers cannot refinance through the government and instead, if they wish to refinance, must move those loans to a private lender.
Though refinancing federal student loans move can certainly result in a lower interest rate, private loans remove many of the repayment protections offered by the federal government, including deferment, loan forgiveness programs, and income-driven repayment plans.
If you are considering refinancing your loans, you can follow these steps:
- Determine what loan to refinance, taking note of the existing interest rates as well as the total loan balance on all applicable loans.
- Research various student loan refinance lenders to determine what interest rate and repayment plans are available. Keep in mind that many of the best student loan refinance companies will base their decision on your credit history. As such, it’s important to determine if rate quotes are based on a hard credit inquiry, which can negatively affect your credit, or a soft credit inquiry, which will not.
- Narrow your decision down to a few lenders by reviewing the impact of each refinancing offer. You can start by working with a student loan calculator to determine how the available interest rates, repayment terms, and any additional fees will impact your monthly payments as well as the total cost of your loan.
In addition to important variables like interest rates and loan terms, it’s also important to evaluate the lender, including the perks they offer (e.g., autopay discounts, repayment plans, etc.) as well as customer reviews.
To help you get started, you can check out some student loan refinance lenders below:
Compare Student Loan Refinance Companies
How much can refinancing help you save? Check out our Student Loan Refinancing Calculator to see how much you could personally save.
Apply for Loan Forgiveness
For some borrowers, student loan forgiveness is a financial unicorn — something saved for dreams and fantasies. However, for others, particularly those with federal student loan debt, forgiveness may be an option.
One of the most sought-after types of student loan forgiveness is through the Public Service Loan Forgiveness (PSLF) Program, which offers loan forgiveness to eligible borrowers who make 120 qualifying payments on their Direct Loans.
To be eligible, you must meet specific qualifications set by the Department of Education, a list of which can be found on the Student Aid website. However, generally speaking, you must work full-time for a nonprofit or government agency, be enrolled in an income-driven repayment plan, and meet the 120-payment requirement mentioned above.
Federal student loan borrowers who aren’t eligible for the PSLF Program may still be eligible for some type of loan forgiveness, though not in the traditional sense. The federal government offers borrowers numerous income-driven repayment programs, like IBR and REPAYE, many of which currently offer forgiveness after meeting specific requirements. For most, this means making consecutive, on-time payments for 20 to 25 years, depending on the repayment plan.
To find out more about PSLF as well as income-driven repayment programs, you can visit the Federal Student Aid website.
Alternatives to Consider
Sometimes saving money means getting creative, and there are a few “out of the box” ways that you can potentially save money on your student loans.
Use a Home Equity Loan, HELOC, or a Balance Transfer Credit Card
A home equity line of credit or home equity loan with a lower interest rate than your existing student loans may help you indirectly refinance your student loans. The same can potentially be true of a promotional offer on a balance transfer credit card. However, keep in mind that these options do carry risks.
In some cases, a line of credit or credit card can negatively impact your credit by increasing your credit utilization and therefore impacting your debt-to-income ratio. Similarly, taking advantage of a 0% credit card promotion can save you money, but if you fail to pay off the balance before the end of the promotional period, you may end up paying substantially more in interest.
Invest Instead of Paying Off Debt Faster
Another option, particularly for the investment savvy, can be investing in a reliable asset, like a mutual fund, the S&P 500, etc., that earns more interest than that currently accrued by your student loan.
In this case, your earnings can be used to repay/offset your student loan interest. Of course, if choosing this path, it’s best to work with a financial advisor who can help you look at the long-term impact of this somewhat risky strategy.
Look for Grants to Pay Off Student Loans
You may be able to find grants to help you pay off your student loans. Though these opportunities are limited, if you are rewarded one, it can be a big help in your student loan repayment efforts.
Try Crowdfunding Your Student Loan Repayment
Some borrowers have had success crowdfunding student loan repayment through sites such as LoanGifting and GoFundMe. Though this strategy might require some work on your end to spread the fundraising campaign, it can be well worth it if you can get help from friends, family, and strangers in paying off your debt.
Though you may not be able to avoid taking out a student loan, there are many reasonable ways to effectively decrease the cost of your student loan debt. Student loan payments may represent the largest source of debt for millions of Americans, but recognizing available resources can make it easier to come to terms with and manage this financial burden.
Author: Jennifer Lobb