Savanna Hoffman
Student loan interest accrues daily, in most cases starting the day the loan is disbursed, and borrowers can expect to pay more than they originally borrowed. However, there are ways to avoid paying interest on student loans. Firstly, understand the type of loan you have, whether it is private or federal, and the associated interest rates. Make timely payments in full, and consider paying a little extra with each payment to reduce the principal amount and the interest owed over time. Avoid extending the repayment term or deferring interest payments, as this will increase the total interest paid. Additionally, borrowers can explore federal loan forgiveness programs, such as the SAVE income-driven repayment plan, which prevents interest from accumulating as long as borrowers make their payments.
| Characteristics | Values |
|---|---|
| Make payments on time | Avoid late fees and accruing interest |
| Pay extra | Even a little extra will reduce the principal and total interest |
| Avoid extending repayment | Extending the term means paying interest for longer |
| Avoid deferring payments | Interest will continue to accrue |
| Avoid defaulting on the loan | Defaulting will negatively impact your credit score and increase debt |
| Understand the loan | Know the type, interest rate, and repayment plan |
| Compare repayment plans | Choose the best federal repayment plan for your situation |
| Start repayment early | Even while still in college to reduce debt |
| Avoid credit cards and home equity | These options will cost more in interest and risk losing borrower protections |
| Be aware of scams | Only share financial information with verified federal programs |
| Sign up for SAVE | An income-driven repayment plan that prevents interest from accumulating |
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What You'll Learn
Make payments on time
Making payments on time is one of the most important ways to avoid paying interest on your student loan. Interest accrues daily, so the earlier you can start making payments, the better. Even if you're still in college, consider starting to pay off your loan early. This will help you graduate with less debt and put you in a better position to repay your loan.
To make sure you're making your payments on time, it's important to know what you owe. Make a list of your student loans, including whether they're private or federal, the monthly payment and due date, the current and principal balances, the interest rates, and the servicer. You can find this information by checking your free credit report or, for federal loans, by looking them up at studentaid.gov.
Once you know what you owe, you can create a budget and explore strategies for reducing your debt. If you need to, request a different due date that makes it easier for you to make your payments on time and in full. You can use the Education Department's Loan Simulator to compare federal repayment plans by monthly payment, total interest, and more.
Making your payments on time is crucial, but there are also other ways to avoid paying interest on your student loan. For example, you can pay a little extra with each payment to reduce the total interest you'll pay over time. You can also avoid extending your repayment term or deferring your interest payments, which will only increase the total amount you owe. Additionally, you can consider signing up for the SAVE plan, an income-driven repayment plan that prevents interest from accumulating as long as borrowers make their payments.
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Pay a little extra each time
Paying a little extra each time is a great way to avoid paying excessive interest on your student loan. This strategy can help you get out of debt faster and save money in the long run. Here are some tips to keep in mind:
Firstly, understand that interest accrues daily on your student loan, and in most cases, it starts the day your loan is disbursed. If you have an unsubsidized loan, pay off the interest on a monthly basis. You don't have to make full monthly payments; just pay enough to stay on top of the interest. This will help you avoid interest capitalization, where the interest is added to your principal loan amount, increasing the total you pay over time.
Secondly, consider setting up automatic payments or direct debits. This will ensure you make payments on time, and you may even be eligible for a 0.25% interest rate deduction. Additionally, ask your servicer to apply extra payments to your highest-interest loans first. This will help you reduce the total cost of your loan over time.
Thirdly, making extra payments can be especially beneficial if you receive a tax refund. You can use this money to make a lump-sum interest payment or pay off your accrued interest for the year. This strategy can save you hundreds or even thousands of dollars over the life of your loan.
Finally, if you can afford it, try to pay more than the minimum each month. The more you pay towards your loans, the less interest you'll owe, and the quicker you'll pay off your debt. You can use a biweekly student loan payment calculator to see how much time and money you can save by making extra payments.
Remember, paying a little extra each time on your student loan can significantly reduce the interest you pay and help you become debt-free faster.
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Avoid extending repayment
One of the best ways to avoid extending repayment on your student loan is to enrol in the SAVE repayment plan. SAVE is a new kind of income-driven repayment plan that prevents interest from accumulating as long as borrowers make their payments. Unlike traditional loan repayment programs, IDR plans set payment amounts based on the income of the borrower, and forgive any remaining balance after they’ve paid for 20 to 25 years.
Previously, borrowers on IDR plans could see their loan balances increase over time, even if they were on track for forgiveness, because their payments were not enough to cover the interest. This is known as interest capitalization, where interest is charged on the unpaid interest. However, under the SAVE plan, any interest above the monthly payment amount won't be charged, so borrowers can avoid having interest pile up on their loans.
Borrowers with REPAYE plans will be automatically shifted to the SAVE plan. To enrol, borrowers can sign up on the Department of Education website.
Another way to avoid extending repayment is to pay off any outstanding interest before consolidating your loans. Consolidating your loans can help you keep your debt from growing, but you may lose benefits such as progress towards loan forgiveness or income-driven repayment. It's important to carefully compare the costs and benefits of consolidating your loans before making a decision.
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Don't defer payments
One of the best ways to reduce student loan interest is to not defer payments. Even if you're still in college, starting repayment early can be a good idea. This will help you graduate with less debt and put you in a better position to repay your loan.
If you have a federal loan, the government will pay your interest while your loans are in a deferred status, for example, if you are still enrolled at least half-time in school or in your six-month, post-school grace period. However, if you have an unsubsidized loan, it will accrue interest even during in-school deferment.
If you are considering deferring payments because you are struggling to make them, there are other options to consider. You could look into signing up for an income-driven repayment plan, such as the SAVE plan, which prevents interest from accumulating as long as borrowers make their payments. Unlike traditional loan repayment programs, IDR plans set payment amounts based on the income of the borrower and forgive any remaining balance after they've paid for 20 to 25 years.
You should also make sure that your federal repayment plan is the best one for you. You can use the Education Department's Loan Simulator to compare plans by monthly payment, total interest, and more.
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Sign up for the SAVE plan
Signing up for the SAVE (Saving on a Valuable Education) plan was a way to avoid paying interest on a student loan. Unfortunately, this Biden-era interest-free payment pause expired on 1 August 2025, and enrollees' education debts began to grow again if they didn't make payments large enough to cover the accruing interest.
The SAVE plan was an income-driven repayment plan. It calculated payments based on 5% of a borrower's discretionary income. This was a much more affordable option than the IBR plan, which takes 10% of a borrower's discretionary income, rising to 15% for certain borrowers with older loans.
The SAVE plan was available to federal student loan borrowers, and nearly 7.7 million borrowers enrolled in the plan. However, with the SAVE plan now defunct, borrowers will need to transition to a different repayment plan, such as the Income-Based Repayment (IBR) Plan or RAP.
It's important to carefully compare the costs and benefits of different repayment plans and make informed financial decisions. Student loan interest accrues daily, and borrowers can expect to pay more than they originally borrowed. Understanding the unique traits of student loans can help borrowers make the best choices for their financial situation.
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