How to Get a Lower Interest Rate on Student Loans

Ben Luthi Published on January 8, 2020

How-to-Get-Lower-Interest-Rate-Student-Loans

The interest rate on your student loans represents the cost of borrowing money for your education. 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.

If you’re wondering how to lower student loan interest rates, there are two primary ways to do so. Here’s what to know about each.

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.

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 loans with a private lender.

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

  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. Purefy’s rate comparison tool can help you review offers from multiple lenders in one place, saving you some time.
  3. Consider a cosigner: One of the drawbacks of refinancing to reduce student loan interest rates is that 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 get a lower 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, lowering student loan interest rates with a refinance loan can save you hundreds or even thousands of dollars in interest.

Set up automatic payments

Many federal loan servicers and private lenders offer a discount on your interest rate if you set up automatic payments. 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.

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.

The bottom line

If you’re wondering how to lower interest rates on student loans, these two 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 way to save money. If you can qualify on your own or with a cosigner, it could make a big difference as you work to become debt-free.