Editors Note: The following article was written by Allen Kors who is the founder and CEO of Achieve Lending
How To Save Money On Student Loans
Student Loans have been in the news a lot lately, and for good reason. A recent Brookings Institution report stated that 17% of college students with debt wrote in the survey that they had no debt, leading many to wonder if college students who take on student loans truly understand what they’re getting into.
Aside from recent debates on student loan forgiveness, college is the first major financial decision many young adults make. The amount you borrow and the interest rate you agree to could impact your finances for the rest of your adult life, which is why it is frightening that a large portion of the population has no idea the impact student loan burden can make.
Student loans aren’t all bad: they provide a way to better yourself and access education for those who don’t have a trust fund or scholarship to fall back on. The average student takes out nearly $30,000 in student loans over four years. With an interest rate of 9% annually, the student can expect to pay nearly $15,700 in interest over ten years, if it took them ten years to pay off the loan. That is a lot of money in interest, over half of the original amount borrowed. The monthly payment on this amount would be $380, which is a lot for someone right out of school and making entry-level salary.
This is why the #1 thing you can do to save money on your student loans and promise a financially bright future is to shop and compare interest rates on your student loans before you sign on the dotted line.
Students can also get creative when it comes to shopping for education financing, such as using peer-to-peer lending sites. New technology, like Achieve Lending’s student loan search engine and comparison tool also allows students to competitively shop interest rates between private lenders with ease.
Exactly How Much Can I Save?
Say that by shopping for private loans you got an interest rate from a lender of 7%, which is competitive given that the federal rate is 6.8% currently. The same borrower who took out $30,000 at 7% interest annually would pay $11,800 over ten years, with a monthly payment of $350. For those interested in a lower monthly payment, this is a monthly savings of $30, or $360 each year that could be used to fund a savings account or contribute to retirement.
If a student were to take that extra $30 each month and apply it to their student loan balance, they’d be able to pay off the debt in 8.8 years (as opposed to 10) and save an additional $1,384 in interest.
The difference in interest rates in our example shows a total savings on the loan of almost $4,000. Many students do not feel the need to shop for loans, but $4,000 for an afternoon’s worth of research is a lot.
It may not seem like a large amount now, especially if you space it out over ten years, but as a working adult, $4,000 adds up quickly. It could add to the down payment on a house or serve as the total down payment for a car.
Borrowers are always encouraged to shop for interest rates and get the total picture before signing on a loan. As you can see, shopping for interest rates not only saves you money over the lifetime of the loan, but if you use the extra cash wisely, interest rate shopping can help you pay off debt faster. When you’re ready, you can click here to begin shopping loan interest rates.
Allen Kors is the founder and CEO of Achieve Lending, the first ever search engine for private student loans. With Achieve Lending students can shop, compare, and choose between lenders and interest rates, often in as little as thirty seconds. See the tool in action here.
Disclosure: Links to Achieve Lending are affiliate links.
Picture by Donkey Hotey