Student loan interest tips

The less interest you pay on your student debt, the better. Here are a few strategies to consider:

• Favor federal loans. With loans taken out from the U.S. Department of Education, interest rates are regulated and capped at a certain level. The interest attached to federal loans is also fixed, so there’s no need to worry about a rate hike over the course of your repayment plan. Private lenders such as banks, though, often charge much higher rates, and many private loans come with variable interest rates that can fluctuate.

• Pay off your debt ahead of schedule. For federal loans, the standard repayment schedule is 10 years, while private ones often have you paying off your loan over 15 years.

If you can pay more than you’re supposed to pay each month, or if you make extra payments against your principal, you can shrink the length of your loan and the amount of interest you’ll pay. For example, if you borrow $10,000 for college at 6% interest on a 10-year repayment plan, and pay according to the schedule, you’ll fork over $3,322 in interest. But if you add an extra $100 to your monthly payments, you’ll lower your total interest tab to just $1,441, and you’ll pay off that debt in about half the time.

• Refinance to a lower interest rate. This typically won’t be worth doing for federal loans, as they generally already feature a low rate. But many private loans taken out at relatively high interest rates can be refinanced into lower-interest-rate loans.

This strategy will be especially effective if you’ve improved your credit score over time, as borrowers with high credit scores tend to be offered the best interest rates. It’s also particularly worth considering if your private loan features a variable interest rate, and you expect rates to rise. If so, aim to lock in a lower rate.

You can gather more of our guidance on student loans by Googling terms such as “Motley Fool” and “student loans.”