How to Get a Lower Interest Rate on Student Loans

Ben Luthi

The interest rate on your student loans represents the cost of borrowing money for your education — and understanding how to get a lower interest rate on student loans can be the key to saving big.

Student loan debt isn’t nearly as costly as credit cards or even personal loans. But because college graduates leave school with almost $30,000 in debt on average, regardless of whether they’ve landed a job, it can be crippling to their financial plans. Whether you have federal or private student loans, there may be a way to get a lower interest rate on student loans than what you’re currently paying.

On average, student loan borrowers have a 5.8% interest rate on their debt. But thanks to record-low interest rates offered by private lenders like banks and credit unions, you can find out how to lower student loan interest on your debt to save money.

The state of student loan interest rates

Student loan interest rates can vary depending on your type of loans, the lender, and possibly other factors. If you have federal student loans, interest rates are updated once each year by Congress. With private lenders, however, interest rates can vary based on the lender, current market rates, your credit history, and your financial information.

Regardless of what you’re paying now on your student loans, though, there are ways to lower student loan interest rates.

Ways to lower student loan interest rate

Ready to solve how to get a lower interest rate on student loans?

Depending on who your lender or loan servicer is, you may have two different options for lowering interest rates on student loans: refinancing your loans and setting up automatic payments.

1. Refinance student loans at a lower rate

Regardless of who your lender or loan servicer is, you may be able to reduce student loan interest rates by refinancing your federal or private loans with a new private lender.

Refinancing your student loans involves replacing your current loans — federal, private, or both — with a new loan from a private lender. If you have interest rates at or near the average of 5.8%, you could potentially score a much lower rate and save hundreds or even thousands of dollars on your loans.

Student loan refinancing can also allow you to get more flexibility with your loan repayment by shortening or lengthening your term.

Just keep in mind that if you refinance federal student loans, you will lose access to the benefits the U.S. Department of Education provides, which includes access to forgiveness programs, income-driven repayment plans, and forbearance and deferment options that are generally more generous than what private lenders provide.

Here’s how to lower interest rates on student loans with this strategy:

  1. Check your current interest rates: Refinancing may not be worth it if you can’t refinance student loans at a lower rate than what you’re already paying. Check your online account to see what you’re currently paying, so you know what you need to beat.
  2. Shop around: You’ll want to compare at least a few refinance lenders to see what interest rates they offer based on your credit profile. Lowering interest rates on student loans may be the top priority, but there are other features to consider, such as discounts, repayment terms, and deferment and forbearance options. Compare student loan refinance rates quickly and easily with Purefy’s Compare Rates tool to review offers from multiple lenders in one place — saving you some serious time.
  3. Consider a cosigner: There is a common drawback of refinancing as a solution to how to lower student loan interest rate: you must qualify based on your credit and income profiles. If you aren’t eligible on your own, however, you may be able to improve your chances with a creditworthy cosigner. Some lenders even allow you to request cosigner release after a certain period of time, if you meet certain payment and other eligibility requirements.
  4. Submit your application: When you’re just shopping around and comparing rates, you’ll typically get a pre-qualified offer based on a soft credit check. Once you submit your application, you’ll get a final offer based on a full credit check and your income information. If you qualify to get a lower interest rate on student loans and you accept, the lender will pay off your existing loans and consolidate them into one new one.

To give you an idea of how to lower your interest rate on student loans through refinancing, here’s a quick example:

Let’s say you have $30,000 in student loans with a 10-year repayment term and a weighted-average interest rate of 6.5%. With this structure, your monthly payment is $341. If you can get a 5.5% interest rate through refinancing and keep your repayment term the same, your monthly payment would drop to $326. That doesn’t sound like a lot, but over 10 years, it’ll save you $1,808 in interest.

A few things to keep in mind before lowering interest rates on student loans through refinancing:

  • There’s no guarantee you’ll qualify for a lower rate than what you’re already paying.
  • If you get a cosigner, they’ll be legally responsible for paying off the debt if you can’t. It’ll also show up on their credit report and could affect their chances of getting approved for credit in the future.
  • If you’re refinancing federal student loans, you’ll lose certain benefits, including access to loan forgiveness programs and income-driven repayment plans. Also, deferment and forbearance options offered by private lenders typically aren’t as generous as the ones provided by the U.S. Department of Education.

If you understand these potential drawbacks and aren’t concerned, learning how to get a lower interest rate on student loans can save you hundreds or even thousands of dollars in interest.

2. Set up automatic student loan payments

Knowing how to set up automatic payments for student loans can also help lower interest rate on federal student loans and private student loans.

Many federal loan servicers and private lenders offer a discount on your interest rate if you set up a student loan automatic payment each month. In exchange for the extra security of autopay, they typically offer a rate that’s 0.25% lower than what you’re contracted to pay.

Setting up autopay can also be good for your credit score because it ensures you’ll never miss a payment, as long as you have the cash in your bank account to cover the expense.

Lowering student loan interest rates this way doesn’t have the same savings potential as refinancing, but you can still come out ahead by hundreds of dollars. For example, if you were to drop your rate from 6.5% to 6.25% on $30,000 in loans over 10 years, you’d save just $4 per month. But over 10 years, that amounts to $456 in interest savings.

Getting on autopay can also make your life easier, especially if you have multiple student loans with different due dates. Check with your loan servicer or lender to see if there’s an automatic payment discount available.

3. Score a relationship discount with your lender

Some private lenders will also give you a discount on your interest rate if you have an existing relationship with them. In most cases, this means you have a checking account, investment account, or other type of loan with the same bank or credit union.

The discount typically runs 0.25%, which isn’t a lot, but it can provide some savings and give one lender an edge over another as you’re comparing refinancing options.

How to lower student loan rates by comparison shopping

If you’re refinancing your student loans, one of the best ways to maximize your savings is to shop around and compare rate offers from multiple lenders. Most lenders will allow you to get prequalified online before you apply, so you can get an idea of what terms you might expect.

Your prequalification offer isn’t final, which means that your actual interest rate can be higher or lower than what you get before you apply. But it can provide you with the information you need to make an informed decision.

Purefy’s Compare Rates tool helps you speed up and simplify the student loan refinance comparison process. Simply provide a little information about yourself and your student loans, and Purefy will give you rate quotes from multiple lenders all at once and all in one place.

This process not only goes faster but also makes it easier to compare your options side by side. As you shop around, make sure you’re reviewing more than just the interest rate. Also, make sure you know whether the rate is variable or fixed. Variable interest rates typically start lower but can increase over time, potentially making the loan more expensive.

What to do if you can’t lower your student loan interest rate

It may be possible that you can’t reduce the interest rate on your student loans from these methods. For example, you may not be able to qualify for student loan refinancing based on your credit score or income — and you might not have a creditworthy cosigner available to apply with you.

Or, maybe you already have set up automatic student loan payments and received the discount, but are hoping to lower your student loan rate even further. It’s also possible that your current loan servicer doesn’t offer a discount for automatic payments on student loans.

If one of these situations is the case, here are some other quick tips to help you better manage repaying your student loan debt.

1. Pay down high-interest debt first

If you have student loans as well as other loans with high interest, it’s typically a smart idea to pay off the highest interest debt first.

Order each of your outstanding loans from highest interest to lowest interest, and start tackling your debt from top to bottom. Any spare cash each month can be put toward the loan principal with the biggest interest to lower that balance more quickly. You can also use other unexpected sources of extra money like cash windfalls (gifts, work bonuses, or tax refunds for example) to make lump sum payments toward high interest debt whenever possible.

By lowering the loan balances of high interest debt first, you’ll pay off those loans more quickly while saving as much as possible on costly interest charges.

But with this method, always keep in mind that you still need to pay the minimum amount due on each of your loans — no matter the interest rate. This will keep all your accounts in good standing and ensure you won’t harm your credit.

2. Pay more than the minimum payment each month

If you’re looking to lower your student loan interest rate, you may also be interested in opportunities to pay off your student loan debt faster.

Outside of student loan refinancing which gives you the choice of a shorter repayment term (allowing you to pay student debt quickly while saving more on interest), another option is to simply pay more each month.

By making larger payments than you owe each month, you’ll cut down on your loan’s principal balance more rapidly. Of course, you’ll have to find extra funds to do so which can be difficult if money is tight. But ultimately, getting rid of your student loans for good also gets rid of your expensive interest payments at the same time.

3. Don’t change your repayment plan — unless you have no other options

If having a strategy for how to get a lower interest rate on student loans is your primarily goal, you should probably avoid changing to another repayment plan. Switching to a different repayment plan, like an income-driven repayment plan for example, ultimately will result in a longer term with more total interest costs.

However, if lowering your student loan interest isn’t possible and you’re still looking for ways to make managing your debt easier, switching to another repayment plan could be helpful — as long as you’re okay with potentially paying more in total interest.

For example, if you have federal student loans, you may qualify for many other repayment options that are still a match for your student loan pay off goals. If you’d like to lower your monthly payment to give your finances more wiggle room, an effective option could be an income-driven repayment plan with a longer repayment term. Or, if you’d like a smaller bill while you get your career started but still want to pay off your loans in 10 years, a graduated repayment plan could be the right choice.

If you have private student loans, you generally have fewer repayment choices. Depending on your financial need or if you have a current hardship, you may be able to work with your servicer to figure out a better solution — such as deferment which postpones payments for a period of time. Or, if you are in a better financial position, you can pursue student loan refinancing — which gives you a great opportunity to save on interest, lower your monthly payment, or a bit of both.

Remember: Always make your student loan payments on time

No matter how you decide to reduce your student loan interest rate or repay your total debt, it’s essential to always make your student loan payments on time.

Keep track of all your bills and due dates, and set reminders to ensure they’re paid before they’re past due. Of course, setting up automatic student loan payments is a smart way to avoid accidentally missing a payment. But if you’re not comfortable with doing so, that’s okay — just be sure to have a solution in place to make each payment on time.

By have a system to avoid any missed payments, you’ll keep all your student loan accounts in good standing and you won’t hurt your credit.

The bottom line

If you’re wondering how to lower interest rates on student loans, these options can help you achieve your goal. Start by checking with your loan servicer or lender to see whether they offer autopay or other relationship discounts. These alone may be enough to get you the savings you need, especially if your credit isn’t in excellent shape.

If your credit is in good shape, though, consider refinancing as a solution for how to get a lower interest rate on student loans.

The average refinance rate for student loans can change often from lender-to-lender, going up and down regularly. Make sure to check and compare your refinance rate offers before applying to get the best deal and save the maximum you can. If you can qualify on your own or with a cosigner, it could make a big difference as you work to become debt-free and meet your goal of how to reduce the interest rate on student loans.

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