How to Get Rid of Student Loan Interest & Penalties

How to Get Rid of Student Loan Interest & Penalties
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Student loans are a ubiquitous part of higher education: the average college senior graduates with a student loan debt of $24,000, as of 2009. With mounting student loan debt and dim job prospects, it can become difficult to pay the minimum due on your student loan, resulting in late payment penalties. In addition, interest charges can add up to hundreds of dollars a month, making paying down your loan seem impossible. While you can't eliminate student loan interest, you can lower the interest and eliminate penalties.

Gather your information. Make a list of all the lenders you owe money to, along with the outstanding principal, interest rate and contact information.

Ask each lender if you qualify for a forbearance or deferment if you are having difficulty making loan payments. In some cases, this may reduce interest payments as well as penalties. A deferment is where your loan payments are temporarily suspended for certain situations like economic hardship, unemployment, military service or enrollment in school. If you are granted a deferment, your interest will be suspended on subsidized Direct or FFEL, Stafford Loans or Federal Perkins Loans. A forebearance is a temporary suspension of loan payments because you are experiencing economic difficulties but are not eligible for a deferment. With a forebearance, interest will still accumulate on the loan.

Apply for income-based repayment, a student loan payment plan whereby your payments are based on your income and family size, not your loan amount. For example, a family of four with an income of $40,000 will pay $81 per month. When you make payments under the IBR plan and your payment isn't enough to cover your student loan interest on federal Stafford Loans, the government will pay the difference for up to three consecutive years. Any remaining amount due on the loan after 25 years of payment is canceled, which could add up to huge savings if you have a large student loan. To apply for IBR, contact your student loan servicer.

Research the consolidation options available to you for each lender. Most student loan lenders like Sallie Mae and Nelnet offer loan consolidation programs, whereby you are able to combine your loans into one loan and make a single payment. Interest rates vary from program to program, so compare the interest rates offered to you by each lender to the current interest rate you are paying on your loans.

Choose a lender to consolidate your loan and then fill out the necessary paperwork. Some lenders make a loan consolidation application available online.

Make your payments on time to avoid penalties.


  • You may pay more interest under IBR because of the extended payment period. In general, if you have a large loan debt and small income, IBR will result in interest savings. However, if you have a small debt and a larger income, you may end up paying more interest. Ask your lender for details about how much interest you will be paying before signing up for IBR.