3 Reasons to Set Up Student Loan AutopayMarch 16, 2022
Balancing life, work, family, friends, and mundane tasks, such as paying bills, takes a lot of effort. Fortunately, if you have student loan payments, you can save time and money by setting up student loan autopay.
Student loan autopay is when payments are withdrawn directly from your bank account from your student loan servicer. Find out why setting up student loan autopay can be beneficial, points to keep in mind before setting up the process, and other ways to save money on your student loans.
Reasons to Autopay Student Loans
The student loan autopay process and discounts may vary among student loan servicers, but here are the main benefits you can get from setting up automatic payments.
You are less likely to be late with a payment.
When autopay is set up for your student loan payments, you are less likely to be late with payment since funds are withdrawn directly from your account on a set schedule. Of course, errors can occur so it is not foolproof. However, setting up student loan autopay greatly reduces the chances of a late payment, which can save you a potential late fee. And late fees are not cheap!
You could incur late fees up to 6% of your monthly federal student loan payment. For private student loans, the late fee depends on the lender. In addition to student loan autopay saving you a potential late fee penalty, the consistent on-time payments could also help your credit history and score.
You may receive a discount on the interest rate.
Although this will depend on your type of loan, in many cases, you could receive an interest rate discount for setting up autopay on student loans. For federal student loans, the interest rate reduction is 0.25%. For private student loans, the interest rate reduction will vary based on your student loan servicer. Usually, you can expect to receive up to 0.25% if a discount is offered.
Although this reduction may seem minimal, it can add up! For example, with $30,000 in federal student loans at 6% interest, you would be paying $9,967 in interest with a 10-year repayment plan. With the autopay reduction, the interest rate would be 5.75%, and you would end up paying $9,517 in interest, which would be a savings of $450 based on a 10-year repayment plan.
You will save time.
When you autopay student loans, not only do you save money, but you also save time. By setting up student loan autopay, you can save time logging into your student loan account and entering your payment information each month. With student loan autopay, you won’t have to remember if the bill was paid each month, giving you one less thing to worry about.
Points to Keep in Mind
Although setting up autopay for your student loans is easy and beneficial, you should keep these points in mind before beginning the process.
- Your monthly payment will automatically be withdrawn from your bank account when setting up student loan autopay. You run the risk of over drafting your account if there are not enough funds to cover your payment, which can cause overdraft fees that will negate any interest rate discount. To make autopay work well for you, be sure to keep up with your bank transactions to ensure you have enough funds in your account when the payment date arrives.
- If you make your payment on a different day each month based on when funds are available, autopay may not be a good fit for you. Once autopay is set up, it can be difficult to change the date of when your payment is withdrawn. If you still want to take advantage of the autopay discount, just choose the latest available date for autopay (before the due date) when you know funds are always available in your account.
- Always double-check to make sure payments are made and correctly applied. Even though autopay is pretty much set it and forget it, errors can still occur. So check to ensure payments are being made and that they are being correctly applied to your loans.
- If you switch bank accounts, immediately update your information with your servicer so autopay will not be trying to deduct the funds from a closed account.
Other Ways to Save
In addition to saving interest on student loans by setting up student loan autopay, you can save on student loan interest in other ways as well.
- Refinance your student loans. When you refinance student loans, you could lock in a lower interest rate and potentially save thousands of dollars over the life of the loan. Student loan refinancing is the process of borrowing a new loan from a private student loan lender to pay off old student loans. Your new loan could potentially shorten the time you will have to pay, lower your monthly payment, and save money on interest costs. Keep in mind if you have autopay set up with a previous student loan servicer, you will have to set up a new student loan autopay when you refinance, and the discount could be different.
- Make additional payments. If you have some room in your budget, consider making extra payments on your student loans. Paying an additional amount – separate from your regular monthly payment – will help pay down the principal faster and save on interest.
Setting up student loan autopay has many benefits, including saving you time and money. But don’t forget to look into other ways to save money on your student loans as well. Utilizing these tips could help you pay off your student loans faster and bump up your savings.
If you decide that student loan refinancing is the right option for you, get an estimate of how much you could potentially save with ELFI by using our Student Loan Refinance Calculator.*