Updated: April 23, 2025
Getting into college is a huge achievement, and if you’ve recently received an acceptance letter in the mail, you should be proud of your hard work. Navigating the financial side of college, however, can be tricky. That said, arming yourself with knowledge could make the process easier.
To help you get started, we’ve compiled 10 facts about student loans that could save you money. Also ensure you connect with your school to see what resources are available to you and read up on how you can make good borrowing choices.
1. Not all student loan servicers are created equal
Many people think that all student loans have similar rates and terms. This simply isn’t the case. Sadly, too many have found out the hard way that some student loan companies are not as reputable as others. If you need to borrow private student loans to fill a gap that federal loans won’t cover, ensure you research lender reputation, payment options, customer service, and consider getting quotes for insight into potential rates. Shopping around for the best service and best options can save you time and money in the long run.
2. Small differences in interest rates and origination fees can mean big dollars down the road
Your interest rate is the cost of borrowing money, and it’s expressed as a percentage. Interest rates might be fixed or variable, depending on your loan, and knowing the difference is essential – but we’ll get to that a little later!
When comparing loans, check the interest rate, but also look at the life of the loan and other associated fees. For example, some loans might have an origination fee. Here’s a scenario to show how some of these variables play out:
- A student takes out a $20,000 loan with a 7% interest rate & 0% origination fee. This loan accrues interest monthly, and when it capitalizes at repayment 48 months from now, this student will have an outstanding balance of $25,600.
- A student takes out a $20,000 loan with an 8% interest rate & 4% origination fee. This loan accrues interest monthly and when it capitalizes at repayment 48 months from now, this student will have an outstanding balance of $27,456.
It might look like a minor change, but these small differences matter a lot.
3. Understanding your principal can help you understand repayment progress
Your principal and payoff balance appear on your monthly loan statements and you should take note of both. Obviously, you want to see both trending down, but watching your principal balance can help you understand the potential impact of increasing or restructuring your payments.
4. Paying interest in school can be wise
There’s one reason making interest payments on student loans while in school is a good idea: compound interest. Compound interest happens when your interest gets added to your principal balance. When this happens, your principal increases, and you end up paying more interest. Making interest payments in school can help you combat this and help you avoid graduating with even more debt than you actually borrowed.
5. Deferment is a short-term solution you should avoid, if possible
Student loan deferment can sound like a great deal if you’re in dire financial straits, but there are a lot of reasons to avoid student loan deferral or forbearance or view them as a short-term solution. The primary reason is that interest accrues on some loans during deferment and all loans during forbearance. This added interest can make it more difficult to repay your loans after your payment pause.
6. A fixed rate may work best for some borrowers, while a variable interest rate could work for others
We told you we’d talk more about interest rates!
Federal student loans have fixed rates, but private loans can be fixed or variable. Knowing the benefits and possible downsides of both options can help determine the best loans for your situation.
With a fixed rate, you know what you’re going to pay for the life of the loan. Variable rates are not so certain. For instance, you might start with a low rate that increases over time or vice versa. Consider how the variable rate is set and whether you’re okay with a variable rate or would prefer the fixed amount.
7. You still pay taxes on forgiven loan amounts
Public service loan forgiveness (PSLF) and other programs may forgive a portion of your student loans once you’ve made enough qualifying payments. Many people don’t know, however, that IRS rules require the forgiven loan amounts to be treated as taxable income. That means you could be on the hook for a hefty tax bill when you least expect it. Understanding this could change the way you pay your loans, or at least prepare you for what’s coming.
8. You might qualify for loan forgiveness
Speaking of student loan forgiveness—only you can figure out if you qualify. The government doesn’t automatically enroll you in loan forgiveness programs, and the rules for qualification are rigid. Research available programs to determine if you’re eligible.
Learn More: Common Misconceptions About Student Loan Forgiveness
9. There are options if you can’t pay, and you should take action fast if you’re struggling.
The worst thing you can do is ignore your student loan payments. Doing so could have serious consequences like garnished wages if you find yourself in default. Call your loan servicer immediately to discuss your options if you’re worried about getting behind on payments. You might be able to set up a new payment plan or refinance to reduce your monthly payments.
10. Some borrowers save significant money with student loan refinancing
Refinancing could save you money in a couple different ways. For instance, if you have several loans with high-interest rates or if rates have gone down since you borrowed, refinancing your student loans might reduce your long-term interest costs. It could also help you reduce your monthly payments if you opt for a longer loan term, though doing so will mean you’ll pay higher interest over time.
