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College cost is very high across the globe, forcing students to seek alternative financing options. Most students seek federal or private loans to pay for their education, which can be costly in the long run.
Often when students or their guardians are searching for a student loan, they focus on interest rates and the amount they will receive. Minimum or no attention is given to how a student can lower the total cost of the loan. The truth is, once you have taken the loan, there is little if not nothing you can do to influence the interest rates provided by the lender.
Nevertheless, you can still lower your total student loan cost by implementing debt management strategies. This article discusses practical ways how can you reduce your total loan cost.
8 Ways How You Can Reduce Your Total Loan Cost
1. Sign up For Automatic Payments
Several lenders present students with the option of signing up for automatic payments. If you agree to this option, you get a lower interest rate, usually 0.25%. If the initial interest rate were 6%, you would pay 5,75% by signing up for automatic payments.
This is one of the easiest ways you lower your total student loan cost. It is also convenient because there is no hassle of monthly payments or the risk of missing payments. Ensure you confirm with the lender if they have restrictions with auto-pay discounts. Automatic payment instructs your bank to make the payment from your bank account without your monthly authorization.
Automatic payment makes your student loan payment a priority. It helps you attack your debt balance with a vengeance, which others call a scorched earth treatment. You will lower total debt costs and get out of debt faster.
2. Pay Immediately
Many lenders often have grace periods, especially while still in school. You could take advantage of these periods and begin making payments even if the lender does not expect you to.
One way to do this is to know your monthly interest and begin paying an amount equivalent to this figure. This way, you reduce the amount you will eventually pay. If you don’t start covering the interest, lenders will accumulate it and add it to the principal when the grace period lapses.
You probably wonder where you get the money to start paying off your student loan when you are still in school. You could take advantage of various side hustles like selling things on Etsy or eBay, content creation, social media marketing, tutoring others, app development, graphic design, etc. These freelancing gigs are available online and flexible, allowing you to study and repay your loan right away. Do not look down on even small payments like $25 monthly; it goes long.
3. Pay Above Your Minimum Payment
Paying above your payment is one of the best ways how can you reduce your total loan cost. The more you repay, the less the overall interest accrues. If you increase your monthly payment, you reduce the interest and your total loan cost. Even if you have covered future monthly payments, continue to repay your loan, and before you know it, you will realize you are almost done.
However, to make more payments above your monthly payments, you need to have a budget and adjust it accordingly. If your pay increases, maintain the budget and devote the extra income towards loan payments. It seems unrealistic for many people, but you require self-discipline as a weapon to fight this monster called debt.
4. A Shorter Repayment Term is Better
When shopping for a student loan, you choose between longer and shorter repayment periods. Many students choose the longer repayment period because they hate repaying the loan. However, longer periods accumulate more interest rates making the total loan costs higher in the long run.
If you choose shorter repayment periods, you may pay high amounts initially, but in the end, you lower the interest you pay and the total debt cost. Reducing your repayment period by 2 years can significantly reduce the total amount you will repay and results in savings.
5. Utilize Your Tax Refund
You can dedicate this money to loan repayment if you get a tax refund from paying student loan interest. A tax refund does not mean you will celebrate with a friend on free money. Remember that a tax refund is money the government is crediting to your account for overpaying. Since you did not plan for this money, make good of it in repaying your student loan.
6. Refinancing The Student Loan
Refinancing is an option you can go for if you have changed circumstances from when you acquired the loan. After graduation, a student is likely to begin working, meaning they can begin building their credit score and profile. As your credit score improves with improved history, you could refinance your student loan.
Refinancing can help you lower your monthly payments and interest rates. This would result in a reduced total student loan cost. However, remember that refinancing would mean losing some benefits associated with federal student loans.
7. Seek Loan Forgiveness or Better Repayment Options
Some federal governments extend student loan forgiveness. Public servants, teachers, and members of the army or special forces can be forgiven for their student loans. You can fall under this category if you belong to these professions; otherwise, roll up your sleeves, get to work, and pay your debts.
8. Exhaust Grant and Scholarship Opportunities First
Before applying for a student loan, explore available options such as scholarship opportunities and grants. Take advantage of all free money to push you for one or two years and pay the remaining years with student loans.
The beauty of using a scholarship is that you do not need to refund the money. The scholarship is like a gift you have been given, so use it when it last. Where can you find a scholarship? Online platforms are rich with scholarships but are careful; the internet is also a place for scammers.
The Bottom Line
Yes, it is possible you can reduce your total cost of student loans. Instead of focusing only on interest rates, you should consider the total loan cost and take practical steps to reduce this figure. Are you skilled and passionate about freelancing job? Take advantage of these avenues to earn money and repay your student loans. Ensure you pay your loans in time through automatic payments and pay small every month while you are in school.