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Federal Student Loans

Federal student loan servicers, along with many private lenders, offer a discounted interest rate if you set up auto-payments. And if you’re a parent, many offer a reduced interest rate on your student loans if you have a student account at another institution that has a “pay as you go” option, this even works if you are looking to refinance your student loans.

It’s important to know that the interest rate you see on your loans is usually only a snapshot of the money you’ll actually pay. And even if the interest rate seems lower to you, it could still be much higher than you’d expected.

Learn more about the interest rates you can expect with this loan calculator.

What’s covered?

Not all federal student loans are eligible for auto-pay options. Federal Perkins loans, Direct Stafford loans, and the Stafford loans made to parents aren’t eligible. They’ll go through traditional repayment plans, but only federal loans, including Stafford loans, can be rolled over.

With all federal loans, if you have a co-signer or family member who’s attending school on your behalf, those students will get auto-pay repayment instead of defaulting on their loans. But for most borrowers, auto-pay options are the only way to automatically switch to the most affordable repayment plan, says Richard Tedeschi, CEO of, an online community of student loan servicers.

It’s a little confusing, but here’s a quick rundown of how it works:

Finance companies that service federal loans like to offer you multiple ways to pay off your loan including income-based, interest-only, and repayment-based repayment plans, depending on the terms of the loan you’re taking out and how much money you owe. While it’s good to have several options to choose from, you may want to consider the differences of auto-pay repayment. Income-based repayment plans are most popular for borrowers in their 20s or early 30s who just got their first job. They use the standard 10-year payment plan to pay off the loan as you earn it. But in a recent study of student loan borrowers, Wells Fargo discovered that the auto-pay plan may be an alternative for many borrowers, especially for those with lower credit scores. Wells Fargo says the auto-pay program generates far more interest for borrowers who have lower credit scores. That means they’re likely to spend more on interest and fees. But when borrowers get rid of the auto-pay option, they can reduce their interest payments, potentially saving money for the rest of their loan. Interest-only plans are also a possibility for borrowers with the best credit scores, according to Wells Fargo. And while these plans typically have higher payment and fee rates, they tend to have lower rates and shorter loan durations compared with conventional repayment programs.

Another option for borrowers with good credit may be to find a lower-interest, traditional student loan.

“If you have good credit, look for a fixed-rate loan that has no fees and you can afford to make monthly payments,” said Elizabeth Carlson, student


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