With the federal student loan interest and payment pause recently ending after 3 1/2 years, many Americans are about to have a monthly expense they aren't used to. And like most recurring financial obligations, the easiest way to make sure you get your payment in on time every month is to make it automatic.
However, enrolling your student loans in AutoPay isn't just about convenience and simplicity -- you could save serious money, as well. Here's how much money AutoPay could save you on your student loans, how to enroll, and whether it might be the right move for you.
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The AutoPay discount
All federal student loan servicers offer borrowers a 0.25% interest-rate reduction for enrolling in AutoPay. Most private lenders offer AutoPay discounts, as well, and some might be even more generous.
While a 0.25% interest-rate reduction might not sound like a big deal, you might be surprised at the difference it could make. Consider the following example.
Let's say that you owe $50,000 on your student loans and decide to enroll in AutoPay. The interest-rate discount of 0.25% results in $125 in annual interest savings, or $1,250 over a standard 10-year repayment period. If you're on an extended or income-driven repayment (IDR) plan, your savings could be even greater.
That $1,250 is a lot of money to save -- especially for something that takes just a few minutes to enroll in and for payments you're required to make, anyway.
How to enroll in AutoPay
If you have federal student loans, you enroll in AutoPay through your loan servicer. Many borrowers don't realize this, but several major loan servicers exited the student loan business during the payment pause. As a result, your servicer might now be different.
If you aren't sure who your student loan servicer is, you can find out via the Department of Education's website.
With a private student loan, you can enroll in automatic payments through your lender or loan servicer -- wherever you send your monthly payments. If you aren't sure, the best course of action is to call your lender and ask.
Who should not enroll in AutoPay
Most financial decisions aren't appropriate for everyone, and enrolling in AutoPay is no exception. If any of the following apply to you, it might be best to hold off on AutoPay, even though you'll miss out on the discount:
- You can't restart federal student loan payments and plan to take advantage of the one-year repayment "on-ramp" that allows borrowers to skip payments through September 2024 without penalties (but with interest).
- You don't want to commit to paying your loans on the same day every month.
- You want to pay down your student loans aggressively and/or want to pay a different amount each month.
The bottom line is that enrolling in AutoPay is a smart move for most federal and private student loan borrowers but isn't a complete no-brainer. If you're restarting student loan payments this Fall, enrolling in AutoPay is a move to consider. Just be sure to know the reasons for and against.
