This 1 Tip Will Save You $5,707 in Student Loan Debt
Most students miss out on a big savings opportunity.
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What if there was a way you could graduate from college with thousands of dollars less in student loan debt?
Given that the average student ends up with $33,310 in student loans and takes over a decade to pay those loans off, finding ways to reduce your total debt is always a welcome change.
This method may be simple, but it can make a huge impact -- start making your student loan payments while you’re still in school instead of waiting until after graduation.
Why you should get a head start on repaying your student loans
With most student loans, you’re not required to make any payments while you’re in school or for the first six months after you graduate, which is considered your loan’s grace period.
However, the lender can begin charging interest as soon as they disburse the loan. The exception is Direct Subsidized Loans, as the U.S. Department of Education pays the interest on those loans while the borrower is in school and during the grace period.
So even though you’re not required to make payments on your student loans when you’re in school, those loans are still accumulating interest every day. After four years or longer of getting your education, your loan balance will be much more than you originally borrowed.
By making any sort of payments towards your student loans while in school, you can reduce how much interest accumulates on them. As you’re about to see, this can make a serious difference in the total amount you end up paying for your student loans.
How much you can save by paying student loans ahead of time
Let’s say that you borrow a total of $20,000 in student loans with a 10-year term at a fixed interest rate of 5%. We’re using that interest rate because it’s about what you can expect with federal student loans for undergraduates and many of the best private student loan providers.
We’ll go with two payment options here: you pay nothing during four years of school or you pay your loan’s interest during school. This is the total you’ll pay for the loan with each method:
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Pay nothing during school -- $31,074.98 ($20,000 principal plus $11,074.98 in interest)
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Pay interest during school -- $25,367.26 ($20,000 principal plus $5,367.26 in interest)
By paying enough to cover the interest during school, you’d save $5,707.72 total over the life of your loan.
How to make your student loan payments
You can make your student loan payments through your loan servicer. With federal student loans, there are several different companies that could be your loan servicer, and you can find out which it is through your school’s financial aid office. With private student loans, the loan servicer is the lender that issued the loan.