3 ways to get a lower student loan interest rate
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“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Published 7:00 a.m. UTC Oct. 18, 2023
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Your interest rate on a student loan is one of the biggest factors behind your total repayment costs. The higher your student loan rate, the more you’ll pay in the long run — and the more you can reduce your rate, the more you’ll save overall.
If you’re wondering how to lower your student loan interest rate, here’s what you can do.
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3 ways to lower your student loan interest rate
Here are three strategies that could help you lower your student loan interest rate:
1. Refinance your existing student loans
Refinancing is the process of taking out a new private student loan with different terms to pay off your existing loans. If you have good to excellent credit (usually meaning a credit score of at least 670), you might be able to get a lower interest rate — and therefore save money — through refinancing.
You can also opt to switch from a variable rate to a fixed rate (or vice versa) by refinancing. A fixed interest rate won’t ever change, which can give you more predictable monthly payments. Variable rates, on the other hand, are sometimes lower than fixed rates for well-qualified borrowers. However, they can fluctuate with market conditions, which means your payments could go up in the future.
If refinancing your student loans sounds like a good fit for your situation, be sure to shop around and compare your options with as many student loan refinance lenders as possible. Consider interest rates, repayment terms, fees, borrower resources and other perks that could affect your repayment experience.
Keep in mind: You can refinance both federal and private student loans. However, federal student loan borrowers who refinance into a private loan will lose their federal protections — such as access to student loan cancellation and forgiveness programs, income-driven repayment plans and the now-ended federal loan pause.
2. Add a co-signer
If you can’t get approved for a lower interest rate through refinancing on your own, consider adding a creditworthy co-signer. A co-signer is someone with good credit who agrees to legally take responsibility for any payments you fail to make. This person should be someone you have a mutually trusting relationship with — such as a spouse, parent or grandparent.
Like a primary borrower, a co-signer must also meet a lender’s underwriting requirements. While criteria can vary by lender, this generally includes having a good credit score, verifiable income and a low debt-to-income ratio.
Adding a co-signer to the loan gives a lender more peace of mind because there’s less of a default risk. However, remember that if you fail to make payments, your co-signer will be on the hook. Missing payments can also damage both your credit score along with that of your co-signer.
Tip: Even if you don’t need the help of a co-signer to get approved for refinancing, having one can qualify you for a lower rate than you’d get by applying on your own.
3. Look into rate discounts
Another option is to look into rate discounts available through your lender or loan servicer. For example, many lenders and servicers offer a rate discount — typically 0.25% — to borrowers who enroll in automatic payments.
There are also some lenders that provide loyalty discounts to existing account holders. If you already have a bank account and are considering refinancing your student loans, see if you could qualify for a discount by refinancing with your current bank.
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What to do if you can’t get a lower rate
If you can’t get a lower student loan interest rate through one of these strategies, the next-best option is minimizing your interest charges over the long term. Some ways to do this include:
Pay down your debt faster
Early repayment can help cut down on the interest you pay over time. There are a few repayment strategies you can consider.
For example, the debt avalanche method focuses on repaying your debt with the highest interest rate first and can reduce your total interest charges. Each month, you’ll put extra funds toward the loan with the highest interest rate while making minimum payments on all of your other debts. Once the loan is paid off, repeat the process for the loan with the next-highest rate — continuing until all of your loans are repaid.
Tip: You could also consider the debt snowball method if you’re more motivated by small wins, though it won’t save you money on interest.
Improve your credit
If you can’t qualify for better rates on your own and don’t have a co-signer, it could be worth building your credit to eventually qualify for a more optimal rate when refinancing. Several strategies could help you do this, such as:
- Disputing any errors in your credit reports with the appropriate credit bureau.
- Paying all of your bills on time to improve your payment history.
- Paying down balances on revolving credit lines (including credit cards and lines of credit) to reduce your credit utilization.
- Becoming an authorized user on the credit card account of someone you trust who has good credit.
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Frequently asked questions (FAQs)
The short answer is no — you generally can’t negotiate your student loan interest rate. This is especially true with federal student loan rates, which are set by Congress each year.
If you have a private student loan, there’s a slim chance that your lender might be willing to negotiate your rate — namely if you have been a good customer with an excellent repayment history and can show that you’ve improved your credit, paid down debt or increased your income. However, this is a long shot, and you’ll likely have more success with getting a better rate by refinancing.
This depends on your financial profile. Federal student loan rates are set by Congress each year, and your credit doesn’t impact what rate you’re offered. Because of this, borrowers with bad or no credit will likely get the most competitive rates on federal student loans.
However, if you have excellent credit, you might qualify for a lower student loan interest rate through a private lender.
While you generally can’t request a lower interest rate on a student loan, there’s no limit to how many times you can refinance to take advantage of a lower rate. However, you should be mindful of any fees that apply and how resetting your repayment schedule could impact your total interest costs to determine if refinancing is worth it.
Yes, you might be able to lower your rates on both federal and private loans through refinancing — though remember that refinancing federal loans means you’ll lose access to federal benefits and protections. You’ll also typically need good to excellent credit (or a creditworthy co-signer) to get approved for refinancing as well as to qualify for the best rates.
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