03.09.10 | Ways to Save on Private Student Loan Repayment
When it comes to private student loans, one tense topic among students and parents is, “how are you going to pay for it?” Between often needing a cosigner and qualifying for a relatively high interest rate, there are a lot of considerations that go into choosing a private student loan that are not necessarily present in the lending offerings of federal programs like Direct Loan and FFEL.
That being said, many private lenders have systems, incentives, and educational materials on hand to make their loans as attractive as possible. These can include benefits like graduation rewards, conditional interest rate reductions, and deferments based on special circumstances.
Graduation Rewards
An example of a graduation reward would be knocking a fixed percentage off your loan after completion of your degree. Here is a short list of what some of the more popular private lenders are doing today for graduation rewards:
- Discover Student Loans – 2% interest rate reduction
- SunTrust – $300 balance reduction
- Sallie Mae – Cosigner release
As you can see, each has their own little incentive for choosing their company over the competition. If you’re interested in reading up on more of these differences, check out our private loan comparison tool.
Rate Reductions
Interest rate reductions are another great way to save money. Many lenders offer these for becoming part of special programs or consistently making on-time payments.
For instance, the Federal Direct Loan program is currently offering an interest rate reduction for borrowers that join the auto-debit program for making monthly payments. In addition, it is not unheard of for lenders to offer a small rate reduction for participating in paperless billing systems. If you have a pre-existing loan(s), check with your lender to see if there are any opportunities available for interest rate reductions.
Consolidation
The topic of private student loan consolidation is tricky in the arena of saving money, because you realistically are not saving anything. When you consolidate one or more loans, you are essentially remortgaging them; it combines them into one bill, repackages them under a new interest rate, and extends the repayment terms. The end result is a lower monthly payment, but the long term effect is more interest being paid to the bank.
So now I ask you, what tips and tricks have worked to save you money during repayment?
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Hi Carmen,
When you start paying back your loans, generally lenders prioritize interest over principal when applying a regular payment to your account. Most use some sort of a sliding scale system, where in the beginning of repayment you are mostly paying interest, and as your repayment moves along the timetable, you eventually pay more and more in principal and less in interest.
Part of what you are paying now is likely the interest that accrued while you were in school. Each lender has their own little formula of how they compute where your monthly payments go — I would check the fine print of your loan to get a more specific answer on that. Otherwise, if you want to see your principal amount go down faster and can afford to make overpayments, make sure you specify very clearly that any extra money you are paying per month goes directly to your principal balance.
Unfortunately, negotiation is pretty rare when it comes to private student loans, but I suppose it wouldn't hurt to call your bank and try.
Thanks for your comment and question!
March 10th, 2010 | #
Hi I am looking for help I got student loan from Citibank for a master degree which I did not finish,but I been paying more than a year,and they make paying just interest and I never see my principal goes down how Can I negotiate my loan please help thank you
March 10th, 2010 | #