Student loan borrowers, Sept. 30 is the final deadline to save a little extra on student loan repayments.
The Department of Education quadrupled its interest rate discount for federal student loan borrowers who enroll in autopay, raising it from 0.25% to a full 1%, but only if borrowers sign up by 11:59 p.m. ET, Sept. 30. The temporary benefit runs through June 30, 2028, and is only for federal student loans in repayment status. After June 30, 2028, the autopay discount reverts to 0.25%, smaller but still worthwhile, experts said.
With millions of Americans with student loans struggling financially, discounts could provide people with some breathing room until inflation cools, student loan experts said. Annual inflation was 3.4% in August and
the core rate, less the volatile food and energy sectors, stood at 2.4%. Both were higher than the Federal Reserve's 2% target.
"Borrowers are already carrying enough financial pressure, so when there’s an opportunity to reduce the cost of their student debt, we want to make sure they can take full advantage of it," said Ken Ruggiero, chief executive of the private online student loan lender Ascent. "Don't leave savings on the table."
How much can the discount save Americans?
Since the quadrupled discount began July 1, if you haven't already enrolled, you've missed two months of savings. But that shouldn't deter you, loan experts said. Signing up by the end of the month would still give you more than 18 months of savings, or free money, loan experts said.
The difference between a 0.25% and a 1% discount may not seem like a lot, but "it adds up over the life of the loan, and it's savings borrowers can't get back once the deadline passes," Ruggiero said. "Every dollar matters when you’re paying down student debt, and it’s so important that borrowers have the information they need in order to take advantage of every savings opportunity available to them."
Here's an example of the monthly savings based on a $10,000 loan at a 7% interest rate over 15 years, using the Bankrate Student Loan Calculator:
- Monthly payment without any autopay discount: $89.88
- With the standard 0.25% autopay discount: $88.49
- On the bonus 1% autopay discount: $84.39
Savings are even larger when you add in the money you keep in your pocket over time, student loan experts said.
"It can reduce the amount of interest that accrues over time, allowing more of each payment to be applied toward the loan principal," said Stacey MacPhetres, senior director of education finance at Bright Horizons, a provider of educational advisory services. That means the loan may get paid off sooner and more money later stays in your hands.
Hidden benefits
Aside from the savings on student loan repayment amounts, there are other unrelated pluses borrowers may see.
Autopay means payments should always be on time, which can also boost a credit score. For the past year, the national average FICO score has dropped, primarily to student loan borrowers who've missed payments, credit scorer FICO said.
A FICO score is a three-digit number used to summarize your credit report. Lenders use them to decide whether to approve loans and credit cards and to determine interest rates and credit limits. A higher FICO score tends to lead to better loan terms, including lower interest rates and costs to you for everything from an auto loan or mortgage to a new credit card.
How do borrowers sign up?
Borrowers should sign in to their account with their loan servicer and add their bank information under autopay settings to enroll.
By default, autopay may be set to pay the minimum amount on your loans, but you can indicate a higher monthly payment during the sign-up process. Just make sure your bank account is funded for that automatic withdrawal amount to avoid overdrafts.
If you’re not sure who your loan servicer is, sign into your account at StudentAid.gov and scroll to the My Loan Servicer section to find the name of your loan servicer’s name and contact information. If you have private student loans, go to your lender’s website to enroll.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Last call for student loan borrowers to lock in added discount
