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Knowing how to lower the interest rate on your student loan is a must for savvy #girlboss borrowers. A better rate could save you hundreds or even thousands of dollars over the life of your loan, not to mention help you pay it off faster. Read on to learn about refinancing a loan for a lower interest rate and other smart strategies.
- Refinance your student loans for lower rates
- Consider choosing a variable rate
- Select a short student loan term
- Strengthen your credit (or apply with a cosigner)
- Sign up for autopay
- Inquire about loyalty discounts
- Pay your bills on time
- Try your hand at negotiating
How to lower the interest rate on your student loan
The best way to lower the interest rate on your student loans is to refinance for better rates. When you refinance, you replace one or more of your student loans with a new loan with a better rate — and save money as a result.
Let’s say you owe $50,000 at a 7.5% rate. Over 10 years, you’d pay $21,221 in interest. But if you’re able to refinance for a 4.5% rate, you’d save $9,038 over that same period.
Unfortunately, not everyone can qualify for student loan refinancing. You need strong credit and a steady income (or a cosigner who meets requirements). But if you have the financial chops, refinancing could be a savvy way to score a lower interest rate on your student loans.
Plus, you could get a cash back welcome bonus of up to $200 if you qualify through one of Student Loan Gal’s recommended partners! Check out our recommendations for the best banks and lenders to refinance student loans here.
Please note that refinancing federal loans turns them private, meaning you lose access to federal protections, such as income-driven repayment and loan forgiveness programs. If you’re counting on any of these, it’s probably not a good idea to refinance student loans.
When you refinance student loans, you can choose between a fixed and variable rate. A fixed rate will stay the same over the life of your loan, whereas a variable rate could fluctuate with the market.
Generally, a fixed rate is a safer bet. But the appeal of a variable rate is that it tends to start out lower.
LendKey’s partner lenders, for example, offer variable rates starting at 1.90%. Their fixed rates start at 3.39%.
If you plan to pay off your student loans in a short amount of time, going with a variable rate has the potential to save you money on interest.
Often, refinancing providers offer different interest rates depending on the loan term you choose. If you go with a shorter term, you could get a lower interest rate. A longer term usually goes with a higher interest rate.
At the same time, don’t select a short term if you’re worried you can’t keep up with payments. A small deduction in your interest rate isn’t worth falling behind on payments or going into default.
But if you can swing a short term, you could snag a lower rate.
To refinance student loans, you need to have strong credit (or apply with a creditworthy cosigner). The stronger your credit, the better interest rate you’ll get.
To put yourself in the best position, work on building up your credit or consider adding a cosigner to your application.
Most lenders, both private and federal, offer a 0.25% discount on your rate when you put your loans on autopay. In other words, you let your loan servicer automatically take payments from your bank account each month.
Autopay makes it easy to keep up with monthly payments; you just set it and forget it. And it could lead to some interest savings.
The only reason you might not want to use autopay is if you’re worried you don’t have enough money in your account. In that case, search for ways to lower your monthly student loan payment.
Some lenders offer loyalty discounts to existing customers. If you’re a SoFi member, for instance, you’ll get a 0.125% discount on any new loans.
Even if your lender doesn’t advertise a loyalty discount on your interest rate, it’s worth asking if you can get one, just in case.
Some lenders also offer a discount for making on-time payments after a certain period of time. Find out if your lender will reduce your rate in exchange for your timely repayment.
Finally, some lenders are open to negotiating, especially when you’re refinancing student loans. Let’s say you want to refinance with one lender, but another gave you a better rate.
Show them the offer and see if they’ll match it. Or call them up and let them know what rate would get you to move forward with your application.
Although a rate cut isn’t guaranteed, it’s worth attempting to negotiate.
Interested in refinancing a student loan for a lower interest rate? Check out our list of recommended lenders here.
Are you struggling to keep up with student loan payments? Learn how to lower your monthly payment here.
Want better rates? Here are the best banks to refinance student loans:
|Variable rates start at...||Fixed rates start at...||Repayment terms||Welcome bonus||Check your rates|
|1.90%||3.39%||5 - 20 years||$200||Visit LendKey|
|1.99%||3.20%||5 - 20 years||$200||Visit Earnest|
|1.99%||3.50%||5, 7, 10, 15, and 20 years||$120||Visit Laurel Road|
|2.00%||3.10%||5 - 20 years||$100 or $200, depending on the amount you refinance||Visit Credible|
|2.31%||3.46%||5, 7, 10, 15, and 20 years||$100||Visit SoFi|
|2.39%||3.14%||5, 7, 10, 15, and 20 years||$100||Visit ELFI|
|1.81%||3.21%||5, 7, 10, 15, and 20 years||N/A||Visit CommonBond|