Tips for dodging interest payments on student loans

Avoiding Interest on Student Loans

Hey Kristin, How do I steer clear of interest on student loans? I want to begin paying off my unsubsidized student loans, but I'm worried about accruing a lot of interest for my bachelor's and master's degrees. Thanks, Rachelle

Hey Rachelle, Wouldn't it be nice if we could borrow money without having to pay any interest? Unfortunately, interest is how lenders make their profit, so it's impossible to completely avoid paying interest on your student loan. I understand your concern about high interest rates, with government student loan rates going up to 6.54% for unsubsidized loans. While there's no magic solution to eliminate interest payments, there are ways to reduce the total amount of interest you pay over time. One simple and effective way to minimize interest costs is by paying off your loan in full. This way, you won't have to deal with interest accumulating each month. The average borrower takes around 20 years to repay their student loans, leading to a significant amount of money spent on interest. Paying off your debt swiftly is a smart move, especially if the interest rate on your loans is higher than what you could earn by investing. I understand that you may not have the means to clear your loan immediately, but you can still lower your interest payments by finding ways to accelerate your repayment.

By making additional payments each month or adding an extra full payment every year, you can shave off months or even years from your loan term. Even small amounts like an extra $10, $50, or $100 can make a big impact on reducing your loan balance. If you're feeling more ambitious, consider making bi-monthly payments instead of monthly ones. By paying more than the minimum requirement, you'll speed up your loan pay-off timeline and ultimately save on interest costs. And don't forget, federal student loan interest rates are currently at 0% until August 31, 2022, creating a prime opportunity to make a dent in your loan principal. Even if you can't settle the loan in full, any payments you make now will lead to substantial savings once the pause on federal student loan payments ends.

While there's talk of potential student debt forgiveness, it's uncertain how much debt will be pardoned, if any. So, taking action now to reduce your loan balance is a wise financial move. Best of luck! Kristin

If you have financial questions, Kristin is here to assist. Feel free to submit an anonymous question, and she may address it in a future column. Interested in similar content? Subscribe to The Balance's newsletter for daily financial insights, analysis, and tips delivered directly to your inbox each morning!