How to Cut Student Loan Borrowing Costs

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Mark Kantrowitz

By Mark Kantrowitz

June 23, 2020

There are three ways to save on your student loans: Reduce the amount of debt, cut borrowing costs and cut repaying costs. Follow these tips to borrow smart. 

How to Save Before You Borrow Student Loans

Two thirds of college students graduate with student loan debt. The average student loan debt at graduation is about $30,000. Try to borrow less. Even if you can’t eliminate the need to borrow student loans entirely, reducing the amount of debt will make it easier for you to repay your student loans. 

Save before college. It is cheaper to save than to borrow. Every dollar you save is a dollar less you’ll have to borrow. Every dollar you borrow will cost about two dollars by the time you repay the debt. College savings plans are the antidote to student loan debt. 

Focus on free money first. Reduce the need for student loan debt by applying for grantsscholarships, tuition waivers, and tuition tax credits.

Budget before you borrow. Understand how much you really need to pay for college and how much you can afford to repay. Borrow as little as you need, not as much as you can. Aim to have total student loan debt at graduation less than your annual starting salary. If you keep you student loan debt in sync with your annual income, you should be able to repay your student loans is ten years or less.

Live like a student. Live like a student while you are in school, so you don’t have to live like a student after you graduate. It is amazing how quickly small purchases add up to big money over a four-year college career. Coffee, soda, bottled water, candy, pizza, take-out, eating out, paid entertainment and gadgets can add thousands of dollars to your college bills.

Cut college costs. Enroll at a lower-cost college, such as an in-state public college or a no loans college. Live at home with your parents or get a roommate to cut housing costs. Spend less on textbooks by buying used textbooks, renting textbooks or selling textbooks back to the bookstore at the end of the semester. Save on travel costs by reducing the number of trips home from school during school breaks. (Check out a list of free stuff for college students.)

Get a job. Work a part-time job during the summer and full-time during the summer. A part-time job will not affect eligibility for need-based financial aid. But, don’t work too much. Students who work a full-time job during the school year are half as likely to graduate as students who work 12 hours or less a week. 

How to Save When You Borrow Student Loans

After reducing the amount of debt, then next steps involve cutting the cost of the debt.

Tuition installment plans don’t charge interest. Tuition installment plans are an inexpensive alternative to long-term debt. Tuition payment plans split college bills into 12 or fewer monthly installments for a one-time fee and no interest.

Borrow federal first. Federal student loans charge lower fixed interest rates than private student loans. They also have better repayment terms. Borrow federal student loans before borrowing higher-cost parent or private loans. 

Subsidized loans are better than unsubsidized. The federal government pays the interest on subsidized loans during in-school, grace and deferment periods. As college financial aid administrators like to say, you should prefer sub over unsub loans.

Choose lower-cost loans. A student loan with lower interest rates and fees will cost less. Figure that a loan with 4% in fees is about the same as a loan with a 1% percentage point higher interest rate when repaid over a 10-year repayment term. 

Home equity loans are cheaper than private loans, but are riskier. Borrowers with very good credit can get a lower interest rate on a home equity loan than on a private student loan. But, if you default on a home equity loan, you can lose your home. If you default on a student loan, the lender cannot repossess your education. 

Check your credit. Before borrowing a private student loan, check your credit reports for free at Check your credit reports at all three credit bureaus, Equifax, Experian and TransUnion. Fix any errors by disputing inaccurate information. The creditor must confirm the accuracy of the information within 30 days or the disputed information will be removed. So, wait for 30 days after filing a dispute before applying for a private student loan. 

Get a cosigner. If you decide to borrow private student loans, apply with a creditworthy cosigner. A cosigner will not only increase your chances of being approved for the loan, but may also result in a lower cost loan. Lenders base eligibility and interest rates on the better of the two credit scores. A better credit score yields a lower interest rate. But, beware, a cosigner is a coborrower, responsible for repaying the debt. There are some lenders that offer cosigner release once specific requirements are met.

Use a loan calculator. Use a loan calculator to compare the cost of different loan options.

How to Save on Student Loans While You Are Still In School 

During the in-school and grace periods, before repayment begins, there are a few steps you can take to keep the student loan costs in check.

Pay interest during the in-school and grace periods. Interest on unsubsidized loans, including private student loans, will accrue during the in-school and grace periods. If you don’t pay the interest as it accrues, it will be capitalized by adding it to the loan balance. This will increase the cost of the loan because it lets interest be charged on interest. Private student loans may capitalize interest more frequently than federal student loans.

Track your spending. Keep track of all your spending using a spreadsheet or a program like Quicken or Knowing how much you are spending will help you spend less, especially if you compare your actual spending with your budget. 

Graduate on time. Taking an extra year or two to graduate means an additional year or two of student loan debt. Plan a path from enrollment to graduation, so you know when you will take each class, given the frequency with which each class is scheduled and any prerequisites that must be fulfilled first. Also, avoid taking any leaves of absence.

Borrow less. Limit your borrowing for your entire education to no more than the starting salary for your field of study. If you borrow more, you will struggle to repay your student loans on a standard 10-year repayment plan.

How to Save When You Repay Student Loans

Even after you enter repayment on your student loans, there are still a few tricks to saving money.

Sign up for AutoPay. With autopay, you agree to automatically transfer your monthly student loan payments to the lender. Most lenders provide a slight interest rate reduction (0.25% or 0.50%) as an incentive.

Deduct student loan interest on your taxes. The student loan interest deduction subtracts your student loan interest payments from your income, up to $2,500 a year. This can save you hundreds of dollars on your tax bill. Even better, you don’t have to itemize to claim the deduction.

Pay more to pay less. Choose the repayment plan with the highest monthly payment you can afford. The more you pay, the quicker you will pay off the debt, saving money on interest. 

Pay extra to pay less. If you can afford to make extra payments on your student loans, accelerate repayment on the loan with the highest interest rate. This will save you the most money over the life of the loan.

Refi if you’ve got great credit. If your credit scores have improved a lot since graduation, consider applying to refinance your private student loans. To improve your credit scores, make on-time payments on all your debts, pay down your credit card balances, and maintain steady employment. Keep in mind refinancing federal student loans means a loss in many benefits – income-driven repayment options, the possibility for loan forgiveness, and generous deferment periods. Consider the pros and cons of refinancing.

At, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.

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