Student loan interest started accumulating for the first time in more than three years on Sept. 1, and federal student loan borrowers will begin to have payments due in October.
Setting your student loan payments to be automatically paid from your bank account isn't just a matter of convenience -- it can save you money too. Here, we'll discuss why you might want to enroll your student loans in AutoPay, as well as a few reasons why it might not be the best idea for you.
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Reasons to enroll in AutoPay
There are two big reasons why enrolling in AutoPay could be the best move for you:
Interest rate discount
All federal student loan servicers offer an interest rate discount for borrowers who enroll in AutoPay, and this will lower your interest rate by 0.25%. This can result in significant savings. For example, if you owe $50,000 on federal student loans, this discount would save you $125 per year.
To be sure, this isn't a ton of money, but it's a nice bonus for making payments you are required to make anyway. Setting up AutoPay is easy and can be done in just a few minutes in most cases.
Convenience
Who needs another monthly bill to worry about? By setting your student loan payment on AutoPay, you don't have to remember your deadline or to actively log into a payment portal. Your risk of missing a payment is virtually zero.
Reasons AutoPay might not be for you
The savings and convenience are excellent reasons you might want to enroll in AutoPay, but that doesn't mean it's right for everyone. Here are a few reasons why you might want to consider not enrolling.
You need more time before you start paying
Most federal student loan borrowers will have their first loan payment since 2020 due in October. And by enrolling in AutoPay now, you can ensure that you won't have to worry about it.
However, if you need more time to pay, the Biden administration has announced a 12-month "on-ramp" to repayment that runs through September 2024. During this period, student loan payments will technically be due and interest will accumulate, but any missed payments won't be reported to credit bureaus, incur any late fees, or cause your loans to go into default.
In a nutshell, if you can't restart student loan payments right away, this is essentially a forbearance that anyone can get, and you don't need to do anything special -- if you want to take advantage, simply don't make your loan payments (but remember, this will expire in a year).
Obviously, if you plan to use the on-ramp to hold off on making student loan payments for a few months, you shouldn't enroll in AutoPay until you're ready.
You don't always keep enough money in your checking account
If you don't maintain a high checking account balance, AutoPay might not be the best idea. If there isn't enough money in your account when your AutoPay date arrives, you could face overdraft fees or late fees. In short, if you have a habit of cutting it close with your checking account balance relative to your bills, it might be better to be able to decide when you want to make your payment.
You want to pay down your student loans more aggressively
Of course, you can make extra student loan payments if you're enrolled in AutoPay, and you can certainly set up automatic payments that are greater than your required minimum. But manually paying a loan can make it more of a priority.
As a personal example, I typically pay a little extra on my mortgage each month, and it's primarily because logging in and making my monthly payment forces me to think of how much interest I'm paying and how much quicker I'd like to pay it down.
For that reason, if you have a goal to pay your student loans off faster than you're required to, opting out of AutoPay could be a smart move.
A good move for most borrowers
The bottom line is that the money-saving and convenience benefits of enrolling in AutoPay are generally worthwhile for most federal student loan borrowers (and many private student lenders give a discount as well). However, like most personal finance decisions, it isn't the right move for everyone, so be sure to weigh the reasons for and against AutoPay before you make a decision.
