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Is It Worth It? – The 0.25% Student Loan Interest Rate Reduction

by Chenell Tull | Updated: April 15, 2015

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I’ve been getting some questions lately about whether or not the 0.25% interest rate deduction some student loan companies offer when you sign up for automatic payments is worth it. I’m sure there are more of you with the same question, so here it is.

While I love the idea of making personal finance “easier” through automation, I am not a fan of automating certain bills. One of them being student loans.

When I got into student loan debt, I wasn’t thinking about the tough road ahead to get them paid off. I didn’t research anything, look for cheaper interest rates, find ways NOT to need student loans to go to college, etc.

I was just flat out LAZY.

When I do something stupid because I was being lazy, I don’t like to allow myself to forget about it. I think it’s one of those things that you should pay a lot of attention to, thus the reason I’m not a fan of automating student loan payments.

But what about that convenient 0.25% interest rate deduction a lot of loan companies give you for automating your payments?

After getting myself into $72k in student loan debt, I’ve learned my lesson and want to see the numbers. 🙂 I’d just rather pay my bills when I would like to and be done with it.

The feeling of being locked into making a payment on the same exact day every month, doesn’t sit well with me for some reason. I like the flexibility of making these payments a few days early if it works out that way based on my payday.
It sounds like a measly, little discount doesn’t it? How could a quarter of a percentage point make any difference whatsoever?

Is it worth refinancing your student loans for a lower interest rate? I calculate what it means to get a .25% reduction on my student loan rate. #studentloans #debtfree #interestrate

How Much You Can Save With A 0.25% Discount on Interest

This is an example I came up with just to give you an idea of what kind of a difference this small deduction can make. Let’s say you have a $50k student loan at 6.8% interest.

Without Discount
Loan Balance:$50,000.00
Loan Interest Rate:6.80%
Loan Term:15 years
Monthly Loan Payment:$443.84
Cumulative Payments:$79,891.81
Total Interest Paid:$29,891.81

Now let’s look at the numbers with a 0.25% discount applied to it.

With Discount
Loan Balance:$50,000.00
Loan Interest Rate:6.55%
Loan Term:15 years
Monthly Loan Payment:$436.93
Cumulative Payments:$78,647.16
Total Interest Paid:$28,647.16

These numbers were calculated using the federal loan calculator.

How the Student Loan Payments Break Down

Over the course of the loan, you would end up paying $1,244 less in interest. Yes, that’s only about $100 a year savings, but when you have $50k in student loan debt, every bit helps. To get the loan paid off in the same 15 year time frame, you would pay $6.91 less each month.

I’ll take it!

I always had the thinking that if I wanted to get this debt paid off faster, I should be making payments whenever possible. Which is true.

However, that doesn’t mean you should miss out on an interest rate deduction, no matter how small, because in the end you’re saving money.

A side benefit of this automatic payment deduction is the fact that it will be almost impossible for you to miss a payment, unless of course you don’t have enough money in the bank.

The student loan company will be responsible for pulling the money out of your account from here on out. This could have added savings benefits because you won’t mess up your credit score by missing a payment, or paying it late. No late fees here!

There isn’t really a catch to this one aside from the fact that you have to be responsible enough to always have the cash in your bank account on the day this payment gets taken out. Seems easy enough, but it was definitely a transition for me at 22 years old.

Some people don’t like letting the student loan companies have access to their personal information, and I agree with this one when it comes to credit card companies.

But with student loans, there is no dismissing them in bankruptcy or making a deal with them, so they are going to get the payment whether they take it from your paycheck or your bank account.

After all of my research, I have to eat my words about not automating student loan payments on this one. It’s totally worth it.

Of course, it’s up to you, but I think the numbers make sense here.

Are the numbers enough to get you to take the discount?

Chenell Tull helps course creators with paid traffic campaigns. She quit her day job in June of 2017 and has been learning the wild world of entrepreneurship ever since. She's sharing what she's learned while building her own business from side hustle to full-time, and the software and marketing tools she can't live without.
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