Student Loan Repayment Tips and Facts

College is a worthwhile experience for many young adults, but there’s no denying it’s also expensive! On average, students pay over $38,000 per year for a college education, and that cost may continue to increase as years go on.

Student loans make college accessible and affordable for students without sizable savings, though these loans can seem incredibly high themselves. If you’re researching student loans for the first time or are entering the repayment period for your student loan, you’ve come to the right guide. We’ll go over some facts about interest accrual and tips for paying off student loans, both federal and private.

How does student loan interest work?

Interest is a critical component of any loan, including student loans. Simply put, student loan interest is the cost of borrowing money from a lender, expressed as a percentage of the loan balance. Over the loan’s term or lifespan, it significantly impacts the total cost of borrowing.

For federal student loans, the government sets a fixed interest rate for each academic year. Your loan’s interest rate is determined by the year you borrow the money and remains fixed for the life of the loan – it isn’t subject to changes in the broader economy. 

Private student loans, however, can have either fixed or variable interest rates, which are often based on creditworthiness and market conditions. Variable interest rates might be lower one year (even lower than fixed interest rates) but significantly higher the next.

Private student loan interest accrues daily starting from when you take the loan out. Therefore, the longer you take to pay off the loan, the more interest accumulates and the more money you owe your lender in the long run. To help reduce your interest expense for your student loan, begin to repay it as soon as you are able.

When does federal student loan interest start accruing?

Federal student loans may accrue interest differently. Exactly when interest begins to accrue depends on the loan type. Subsidized loans do not accrue interest while you are attending school at least part-time, during your grace period, or during deferment. In contrast, unsubsidized loans start accruing interest as soon as you receive the money. 

Understanding these differences can help you minimize your costs. Take extra care to read the requirements and terms of any student loan carefully before signing on the dotted line.

When do student loan payments start?

Federal student loan payments typically begin after a six-month grace period following graduation, leaving school, or dropping below half-time enrollment. This “grace period” allows borrowers to find a job or settle into their post-school life before taking on repayment obligations.

However, keep in mind that interest on unsubsidized federal loans accrues during this time, so it might be worthwhile to start making payments ASAP on these types of loans.

For private student loans, the repayment timeline varies depending on the lender and loan terms. Some private loans require payments while you’re still in school, while others may offer a grace period. Once again, you should always review the terms of your loan agreement to understand when your payments will start.

9 Tips for paying off student loans

With the right steps and strategies, your student loan repayment plan can minimize how much interest accrues and pay your loans off faster. Here’s a handful of smart repayment tips to follow.

Apply to the right student loans

Your repayment approach starts before you take out the loan! Student loans can vary heavily in terms of amount, interest rate, fees, and other factors. That’s why the first thing you can do to develop a “smart” loan repayment plan is to take out loans that work for your budget – now and in the future.

As you begin the student loan application process, do plenty of research into what a loan requires and when payments are expected to begin. For instance, you may want to avoid loans with high interest rates or significant late fees.

Sharonview’s student loans, offered through Sallie Mae, are good examples of loans with beneficial aspects, like no origination fees and competitive rates. Ultimately, if you choose the right student loan, paying it off will be much easier in the long run.

Make early and extra payments

The more you pay toward your student loans each month, the more you reduce the principal, which also reduces how much interest accrues with each billing cycle. With this in mind, remember that you can make more than the minimum payment each month. Even small extra payments can make a big difference in the long run – for example, putting in an extra $50 or $100 over the minimum.

Set up automatic payments

Many lenders offer a small interest rate reduction – generally around 0.25% – for borrowers who enroll in automatic payments. This step not only helps you save money but also ensures you never miss a due date, avoiding late fees and potential credit score damage. Automatic payments are especially helpful for those juggling multiple financial obligations since they streamline your repayment process.

Developing and keeping a budget

Creating and sticking to a budget is essential for good financial management, especially managing student loan repayments (plus, it establishes good financial habits for the rest of your life). Start by tracking your income and expenses, then identify areas where you can cut back. Allocate any extra funds toward your loan payments to reduce your student loan debt as quickly as possible. Use budgeting tools to stay on track to ensure your spending aligns with your financial goals.

Use student loan tax deductions

If you take out student loans, you might be eligible to deduct some of the loans’ interest you paid from your taxable income for that year. This effectively reduces your tax bill or increases your annual refund. To qualify, your modified adjusted gross income must fall within the IRS limits for the tax year, so reach out to a tax specialist if you aren’t sure.

Think about refinancing

If you have high-interest private loans and/or a good credit score, refinancing could lower your interest rate and reduce your monthly payments. Refinancing involves taking out a new loan from a private lender to pay off your existing loans, preferably with a better interest rate or loan terms.

Keep in mind, however, that if you refinance your federal loans, you may lose access to benefits, such as income-driven repayment plans and loan forgiveness programs, as well as any subsidization. 

Find affordable student loans today

Excellent student loans can make college accessible and affordable, especially with the right financing partner. With competitive rates and multiple repayment options for flexibility, Sharonview’s student loans are ideal for incoming and current college scholars. Discover our student loans today, or contact us to learn more!