Student loans 14 October 2022

How Can You Reduce Your Total Loan Cost Fast?

High cost of college leads students to borrow loans. These loans may be expensive in the long-term as interest charged increases the total amount to be repaid. We have listed 10 practical ways to help reduce your total loan cost so it is easier to pay off.

College can be expensive for many students which is why more than 50% of the students in America end up taking loans – either private, federal, or both.

The average cost of attendance in the States for on-campus in-state undergraduate students attending a public institution is around $104,108 over 4 years. Whereas, undergraduate students studying at private nonprofit universities pay more than $200,000 over the course of 4 years. This cost includes tuition and fees and college-related living expenses like transportation, room and board, etc.

Through loans, students can cover the high cost of getting a degree and are able to get through college successfully.  However, the problem is that some of these students have a hard time paying off the money that they borrowed. This article will help you find solutions to how you can reduce your total loan cost easily, quickly, and effectively.

Ten Ways To Reduce Your Total Loan Cost

We have ten ways to help you answer the question: how can you reduce your total loan cost?

All the suggested ways are easy and practical and can help you reduce the loan cost significantly. You can even combine all the given options, or mix a few, so the savings you achieve would be much greater than using just one solution.

However, before we get to the ways to reduce the total loan cost, it is best to understand the parameters that are used to calculate interest and the total loan. The formula to calculate the interest on a loan includes the principal amount that is borrowed (P), the interest rate (R), and the term or time (T) that you have to pay back the debt completely. The main thing to understand is that any changes in one of these components can help you alter your total cost of a loan.

So, if you can decrease the principal amount, reduce the total time, or get discounted interest rates, the total interest would decrease leading to a cheaper loan in the long term. There are many ways to help decrease these values and reduce the overall debt burden.

The following are the 10 best ways to reduce your total loan cost.

#1 Compare Offers And Do Research Beforehand

If you are trying to reduce your total loan cost, then it is best to start early. Many lenders offer rates slightly different than one another. A lot of them allow you to check the rates by filling out quick online forms. Checking the rates this way won’t affect your credit score either.

Therefore, it is best to compare offers and do research before you accept any loan. If you just go with the first one that you qualify for without looking around, you might end up with the more expensive option.

You can even prioritize federal loans if you qualify for one. Federal loans offered to students usually have lower interest rates compared to private ones. Moreover, if you end up working in the public sector after graduation, you may even have the option of having your loan forgiven or getting more leverage.

#2  Choose A Shorter Term

Some lenders provide options in terms of the repayment term. The repayment term refers to the number of years within which you have to repay the debt fully. To reduce the overall cost, it is best to go for the shortest term available as an option. This may mean paying a greater amount of monthly payments; however, in the long term, it reduces the overall cost of the loan. So, the quicker you pay off your debt, the lower the interest will be overall.

This overall reduction happens because the ‘T’ in the interest calculating formula is reduced which decreases the calculated interest. For example, if you take a loan of $12,000 at a 5% interest rate and instead of paying it over 10 years, you choose a shorter term of 8 years. By doing so, you will save an amount of $1,200 when compared to the 10 years scenario.

However, bear in mind that this method may mean higher monthly payments. Therefore, always go for a plan that you can easily afford to avoid any late payments or penalties. You could even do some side jobs to help with the loan and pay it off quicker.

#3 Use Auto Pay For a Reduction in the Interest Rate

Using autopay is another answer to how you can reduce your total loan cost. It is actually a very convenient way to do so.

Many lenders give the option of automatic payments where the loan providers take money directly from your bank account on a specific date every month. You can enjoy a reduction, of 0.25% typically, in the interest rate if you opt for this. This amount may seem small, but makes a noticeable difference in the long term. It won’t only reduce the rate but will take out the hustle of manually paying the monthly installment. You can be saved from late payments and penalties this way too.

This method reduces the value of ‘R’ in the formula used to calculate interest. So, if your original interest rate of 5% is reduced by 0.25%, you will lower your total loan cost and save money.

You can calculate your monthly payment using our simple-to-use calculator below.

Enter your loan information

Loan amount

Interest rate

Loan term

#4 Make More Than The Minimum Payment

Making extra payments can also help reduce your total loan cost. The more payments you make, the quicker your debt balance will decrease. This will decrease the principal amount that you owe in the first place much faster, leading to lower interest rates. It would also help you to reduce your total term of payment, which in turn reduces the amount of total interest you would pay in the long term.

However, before making extra payments, it is always wise to check with your lender first as some may charge a penalty on early payments. Moreover, make sure that you have enough to pay the extra. Do not financially overburden yourself if you are able to at least make the minimum payment.

#5 Refinance Your Loan

A way to reduce your overall loan cost is by refinancing with a different lender. It involves switching the current loan to another lender offering more favorable terms. The situation can get even more favorable for you if you can develop a good credit score.

When students graduate and start working their credit score situation usually changes and improves. Once your credit scores go up, you can qualify for lower interest rates. There are quite a few ways in which you can increase your credit scores and enjoy its benefits in the face of cheaper loans. However, you might have to shift from a federal student loan and refinance it as a private student loan in order to get the benefits.

However, do keep in mind that refinancing your original loan into a private student loan may result in losing some options and benefits that you can get only through federal loans.  Moreover, refinancing has many variables and not all may apply to everyone. So, the final result in terms of saving may differ in every situation.

#6 Use Part Of Your Bonuses, Tax Refunds, Or Gift Money

You can try and reduce your overall payment by putting a part of your bonuses, tax refunds, and gift money towards loan repayment. This will mean that you will be paying more than the minimum payment, which will decrease your overall time frame and the amount of the following payments too.

The amount you put into the debt does not matter. Even the littlest contribution can help lots.

#7 Look For A Loyalty Discount

If you have been a previous customer of your current lender, you could be eligible for a loyalty discount. Some lenders offer this to keep their customers. Moreover, being a previous customer who has successfully paid their debt in a timely manner gives lenders more confidence and they can offer lower interest rates.

There is also a certain group of customers with specific criteria that are offered more discounts. You can contact your lender to check with them if you are meeting any such criteria.

#8  Seek Out Loan Forgiveness For Student Loan Debt

If you are really struggling with loan repayment, there are various helpful options for you out there. Many organizations offer financial help to students who are unable to pay their debts. This opportunity is usually available to graduates who work for non-profit organizations or in the public sector. However, some programs are also targeted toward those working in other sectors.

These programs are usually career-related, like loan forgiveness programs for nurses,  and most people can find one that they can apply for. However, the competition for such programs is quite high and you will have to prove that your financial status is not good enough to repay the loan.

You can also try and look for scholarships that give students prize money. You can use the funds to pay up your student debt.

#9 Budgeting

Developing a budget can also help reduce your total loan cost. It can help prioritize your expenses which can help you avoid overspending. This way, you can set aside some money easily to help repay your debt in a shorter period of time. You might also be able to make extra payments this way which can reduce your overall loan cost.

#10 Don't Allow Interest To Capitalize

If you defer your interest payments or do not pay them on time, the amount accumulates. The missed payments are added to your loan’s principal amount which will increase your overall loan balance and you will end up paying interest on that higher loan amount. Therefore, always pay up on time or before time so that the interest does not capitalize on your loan.


Can you reduce your loan?

Yes, there are ways to reduce your total loan cost like making more than the minimum payment, choosing a shorter repayment term, using auto-pay discounts, and refinancing with another lender with better terms.

What is one way to reduce the overall cost of the loan?

One easy way to reduce the overall loan cost is to make more than the minimum payment. This reduces the cost by reducing the overall interest you pay over time on your loan.

How can you pay for college without student loans?

Scholarships and grants are free money available to students and can help pay off a chunk of college costs. Moreover, students can study part-time and take on part-time casual jobs alongside their education to help pay for college themselves. Going part-time would also help spread the tuition cost a bit more making it more manageable. Parents can also help finance your education or part of it if they are capable and willing.