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A lower student loan interest rate could reduce your monthly payments, which could help you pay off student loans faster. Here’s how to lower the interest rate on federal or private student loans.
1. Refinance student loans
When you refinance, you trade your existing loans for a new private loan, ideally with a lower interest rate. Your new lender will pay off your old lenders, and you’ll make payments to the new one going forward.
To qualify for student loan refinancing, you typically need:
Good to excellent credit. You’ll need a score that’s at least in the high 600s, or a co-signer with good credit. The higher your — or your co-signer’s — score, the lower the interest rate you’ll qualify for.
Comfortable cash flow. You'll need enough income to afford your student loan payments and other bills, like rent and credit cards, without feeling too squeezed.
The better your financial situation, the lower the interest rate you'll likely be offered. Lower rates also usually come with shorter repayment terms — the minimum most lenders provide is five years — and variable rate student loans.
If you’re ready to refinance, compare student loan refinance companies to find the lowest rate you qualify for. Refinancing isn’t a good option if you want to pursue Public Service Loan Forgiveness or make lower payments through an income-driven repayment plan — you’ll lose access to those programs if you refinance federal student loans.
How much interest could you save?
2. Automate your payments
Refinancing is the main way to lower your interest rate, but you can also save by signing up for autopay — even if you don’t refinance.
Federal loans and many private lenders offer a 0.25% interest rate discount when you sign up to have your payments automatically deducted from your bank account. It’s sometimes called an ACH discount, which stands for automated clearing house. Contact your servicer to find out if the discount is available for your loans.
Another benefit of autopay: It can ensure you don't accidentally miss a payment. Just check that you have enough in your bank account each month to avoid getting hit with overdraft fees.
» MORE: Why are your student loan interest rates so high?
3. Snag a loyalty discount
Some lenders offer loyalty discounts in addition to the ACH discount. You typically need to have an eligible account with the lender at the time you receive your loan to qualify.
For example, SoFi discounts rates by 0.125% for its members who previously borrowed from them.
Fractions of a percentage point may not sound like much, but these discounts can add up. On $30,000 of debt with a 6% interest rate, saving 0.25% in interest means you’d pocket $450 over 10 years. If you got a 0.50% rate reduction on the same loan by snagging the ACH discount and a loyalty discount, you’d save almost $900 over 10 years.
Can’t get a lower rate? Don't panic
Refinancing isn’t for everyone, and a 0.25% discount goes only so far. But there are other ways to save on interest.
Prioritize high-interest student debt. If you’re tackling your student loans aggressively, direct your extra payments to those with the highest interest rate. But don’t neglect your other loans; pay the minimum amount due on all of your debt each month to avoid defaulting.
Stick to the standard repayment plan. You’ll be done paying your loan — and the interest — after 10 years if you stick to the standard federal repayment plan. While income-driven plans may sound appealing because they can lower your monthly payment, they also increase the total amount of interest you pay.
Pay off your loan faster. This one’s easier said than done. But if you rework your budget or get a side hustle, you can pay off your student loans early and save on interest in the process. If you pay more than the minimum payment, ask your lender or federal student loan servicer to apply the extra payments to your current balance instead of your next payment.
Key terms in this story
Autopay: A payment option that allows your student loan servicer to automatically debit your monthly payment from your bank account. If you enroll in autopay, you will likely receive an interest rate discount (usually 0.25% or more) and won’t have to worry about accidentally missing a payment.
Refinance: The process of swapping out your current student loans for a new private loan with more favorable terms, like a lower interest rate. Refinancing can help save you money on your loan and can be right for people with stable finances.
A student loan ismoney you borrow from the federal government or a private lender to help pay for college costs, like tuition, supplies, books and living expenses. Federal student loans typically have lower interest rates and more flexible repayment options than private loans. Borrowers should exhaust student loans from the federal government before applying with private lenders.
FAQs
Refinancing is the main way to lower your interest rate, but you can also save by signing up for autopay — even if you don't refinance. Federal loans and many private lenders offer a 0.25% interest rate discount when you sign up to have your payments automatically deducted from your bank account.
How can I lower my student loan interest rate? ›
6 Ways to Lower Your Student Loan Interest Rate Now
- Refinance your student loans.
- Sign up for autopay.
- Look for loyalty discounts and more.
- Raise your credit score.
- Use a cosigner when refinancing.
- Negotiate with your current lender.
- More ways to save on student loans.
- Lower student interest rate FAQ.
Here are seven ways you may be able to lower your interest rate and reduce mortgage payments, both at signing and during your loan term.
- Shop for mortgage rates. ...
- Improve your credit score. ...
- Choose your loan term carefully. ...
- Make a larger down payment. ...
- Buy mortgage points. ...
- Lock in your mortgage rate. ...
- Refinance your mortgage.
Pay More than Your Minimum Payment
Paying a little extra each month can reduce the interest you pay and reduce your total cost of your loan over time. Continue to make monthly payments even if you've satisfied future payments, and you'll pay off your loan faster.
Is there any way to lower student loan payments? ›
How to Lower or Suspend Your Student Loan Payments
- Switch Repayment Plans.
- Update Your Current IDR Plan.
- Get Temporary Relief: Deferment or Forbearance.
- Review Your Loan Forgiveness Options.
Federal student loans have fixed interest rates, so they won't change during the repayment period — which typically lasts from 10 to 25 years, depending on your repayment plan. (If you're already repaying older student loans, this interest rate hike doesn't affect you.)
Can I ask Sallie Mae to lower my interest rate? ›
You can't change the type of interest rate (fixed or variable) that your private student loan after it's been finalized. But there are some things you can do to lower your total loan cost. Take advantage of discounts your lender offers, like Sallie Mae's discount for enrolling in auto debit.
How can interest rates be lowered? ›
Conversely, an increase in the supply of credit will reduce interest rates while a decrease in the supply of credit will increase them. An increase in the amount of money made available to borrowers increases the supply of credit. For example, when you open a bank account, you are lending money to the bank.
Can you reduce loan interest? ›
Pay More as Down Payment
However, instead of paying the least, it's better to contribute more from your pocket as down payment. The higher you pay initially, the lower is the loan amount, which directly reduces the interest you have to pay as well.
How do you pay less interest on a loan? ›
Make bi-weekly payments
Instead of making monthly payments toward your loan, submit half-payments every two weeks. The benefits to this approach are two-fold: Your payments will be applied more often, so less interest can accrue.
You must stop your student finance payments as soon as you decide to suspend your studies or leave your course early. This will reduce any repayments you may need to make.
Is there a way to get student loans reduced? ›
Public Service Loan Forgiveness (PSLF)
The PSLF Program forgives the remaining balance on your Direct Loans after you've made the equivalent of 120 qualifying monthly payments while working full time for a qualifying employer.
What are three ways to lower the cost of college? ›
1. Improve Your Chances of an Affordable College Cost
- Apply to generous schools. ...
- Don't commit early to a college. ...
- Look for scholarships before and during college. ...
- Improve your financial aid eligibility. ...
- Learn how to evaluate aid packages. ...
- Get college credit on the cheap. ...
- Get a student job during college.
How to Lower Student Loan Interest Rates
- Set up automatic payments. On both private and federal student loans, lenders and loan servicers often offer a rate discount if you set up automatic payments. ...
- Look for other discounts. ...
- Negotiate with your lender. ...
- Refinance your student loans. ...
- Get a co-signer. ...
- Build your credit.
- Apply for an income-driven repayment plan. ...
- Sign up for a graduated repayment plan. ...
- Consider an extended repayment plan. ...
- Consolidate your loans. ...
- Move to another state. ...
- Enroll in automatic payments. ...
- Get help from your employer. ...
- Refinance your student loans.
Here are seven strategies to help you pay off student loans even faster.
- Make extra payments toward the principal. ...
- Refinance if you have good credit and a steady job. ...
- Enroll in autopay. ...
- Make biweekly payments. ...
- Pay off capitalized interest. ...
- Stick to the standard repayment plan. ...
- Use 'found' money.
Secured loans, by comparison, are backed by something of value, such as a car or house, which can be seized if you default. But lenders can't seize a degree. So student loan interest rates are typically higher than secured loan rates because the lender's risk is higher.
Can I refinance my student loans for a lower interest rate? ›
You can refinance both federal and private student loans to get a new private loan. You can't, however, refinance and end up with a federal student loan. Usually, the point of refinancing is to lower your interest rates so that monthly payments are more affordable.
What is a normal interest rate on a student loan? ›
Current student loan interest rates
Federal student loans currently have interest rates ranging from 6.53 percent to 9.08 percent. Average private student loan interest rates, on the other hand, can range from around 4 percent to about 17 percent. Federal student loan rates are the same for every borrower.
