8 Ways to Lower Your Student Loan Interest Rate

Looking to lower your student loan interest rate? You’re in the right place. Reducing your interest rate can ease your monthly payments and help you save significantly over the life of your loan. Whether you’re exploring refinancing options or preparing to take out a loan, we’ll show you how to find the best rates and manage your debt more effectively. 

8 ways to lower your private student loan interest rate

When you take out loans for college, you have a choice between federal and private student loans. The interest rates on federal student loans are fixed and set by Congress each year, so your rate depends on when you borrow. 

The rates on private student loans can differ by lender. Your interest rate largely depends on your financial profile, especially your credit score and income, as well as whether you apply with a cosigner. 

Private student loan rates can be fixed or variable, meaning they can fluctuate with market conditions. Here are the best ways to lower the rate on your private student loans, whether you have loans you’re paying on or are looking for a new loan. 

We’ll discuss several strategies to lower the interest rate on federal loans below. 

Strategy	For existing loans?	For new loans?
Refinance to a lower rate	Yes	No
Compare student loan quotes and prequalify	Yes, if refinancing	Yes
Sign up for autopay	Yes	Yes
Look for loyalty discounts	No	Yes
Improve your credit score	Yes, if refinancing	Yes
Apply with a cosigner	Yes, if refinancing	Yes
Choose a shorter student loan repayment term	Yes, if refinancing	Yes
Negotiate with your lender	Yes	Yes

Refinance to a lower rate 

One way to lower interest rates during student loan repayment is by taking out a new private student loan to pay off your current loans, a process known as refinancing.

The benefits of refinancing can include lowering your interest rate, reducing your monthly payments with a longer term, or both. Through refinancing, you can also combine multiple loans into one to simplify repayment. 

Here’s an example scenario of a borrower refinancing their private student loan:

	Pre-refinance	Post-refinance
Balance	$35,000	$35,000
Rate	10%	5%
Time to repay	4 years remaining	5 years (new term)
Monthly payment	$774	$553

You may qualify for a lower interest rate on your private student loans through refinancing if: 

• You’ve improved your financial situation: A higher income or lower debt-to-income ratio can signal to lenders you’re less of a risk.
• Your credit score has improved: If your credit score (or your cosigner’s) has improved since you applied for your original loan, you may be eligible for a better rate.
• Current interest rates are lower: Interest rates often fluctuate with the market, and you may find they’re now lower than when you took out your loan.

Before refinancing, consider your total interest costs. Even if you get a reduced rate, you might pay more interest over time if you extend the term. The lower monthly payment that comes with a longer term can be beneficial, but paying more interest in the long run can be a downside. 

Refinancing federal loans is also an option, but doing so would mean you lose access to federal benefits, such as income-driven repayment, forbearance, deferment, and forgiveness programs. If you might need federal loan benefits in the future, it’s best to keep your federal loans as they are.

To begin comparing options, check out our list of the best student loan refinancing companies.

Compare student loan quotes and prequalify

Before refinancing your loans or borrowing new loans, it’s crucial to shop around. Many lenders let you check your rates online through prequalification, a quick process that won’t harm your credit score. 

Request quotes from at least three of the best private student loan lenders or student loan refinancing providers. As you review the quotes, pay attention to the rates for various repayment terms. The benefit of spending the time to rate-shop is the ability to find the most desirable rate.

Rates also vary because every lender has a different business structure and appetite for risk. When lenders set rates, they must ensure they’re charging enough to cover their costs. Plus, they’ll set higher rates for loans they think are riskier (e.g., loans to people with worse credit).

A lower rate doesn’t always mean a lender is the best option. Examples of when you might choose a higher rate include:

• You’ll get discounts for other services. You may qualify for a discount if you have multiple products with your lender, such as a bank account and a student loan. It might be worth accepting a higher rate if you’ll get a discount on your loan or other services.
• No fees. Some lenders charge origination fees or late payment fees that can add to your costs of borrowing. 
• The lender’s reputation and service level are stellar. If you have experience with the lender or it’s known for providing exceptional service, it may be worth paying a little more. 

Not sure where to start? Check out the best low-interest student loans or see current student loan interest rates.

Sign up for autopay

Lenders prefer borrowers who make regular, on-time payments. Automatic payments make that happen. To encourage it, many private student loan companies and federal student loan servicers offer a rate reduction—often 0.25 points—to borrowers who use autopay.

Although a 0.25-percentage point discount may not sound like much, the savings can add up. Let’s say you have a $35,000 loan with a 20-year repayment term at 8%. While a 0.25 rate reduction will only lower your payment by $5.42 each month, you’ll save $1,301 over the life of the loan.

You can see how even small discounts add up over time:

	No autopay discount	With autopay discount
Loan amount	$35,000	$35,000
Repayment term	20 years	20 years
Interest rate	8%	8%
Autopay discount	0%	0.25%
Discounted rate	8%	7.75%
Monthly payment	$292.75	$287.33
Total interest costs	$35,260.97	$33,959.68
Lifetime interest savings	—	$1,301.29

If you have federal student loans, you can sign up for autopay and get a 0.25-percentage-point rate reduction on all Direct federal student loans. Direct Loans are federal student loans made or consolidated directly by the U.S. Department of Education starting on July 1, 2010.

Many private student loan companies also offer a 0.25-percentage-point rate reduction when you sign up for autopay. Ask your lender whether it offers an autopay discount. Autopay can also make loan payments more convenient. However, be sure to monitor your bank account to ensure you have enough to cover the payment.

Look for loyalty discounts

Some private student lenders reward loyalty by offering a rate reduction to repeat customers or customers who use more than one product. 

For instance, SoFi offers private student loans with a 0.125-point interest rate reduction to members who take out a new loan.

If you pursue this option, pay close attention to the loyalty discount terms. While you may be able to open a qualifying account and immediately apply for a loan to get the discount, this isn’t always an option. Some lenders may require your qualifying account to be seasoned (e.g., six months old). 

Check with your bank or lender to see whether you can take advantage of loyalty discounts.

Improve your credit score 

Though many factors determine your interest rate, your credit score often carries significant weight. Improving your score before you apply to refinance student loans or take out a new student loan can get you a lower interest rate. 

Depending on what you’re trying to fix on your credit, correcting the issues may take as little as a month or up to several years. For example, you may see improvements the month after you pay down your credit card balances. In contrast, eliminating late payments could take up to seven years.

The five general credit score ranges are:

• Poor (less than 580)
• Fair (580 – 669)
• Good (670 – 739)
• Very good (740 – 799)
• Excellent (800 and above)

You’ll often see improvements to the rates and terms each time your score increases to the next range. 

The following steps can improve your credit score and help you reduce student loan interest rates:

1. Get a copy of your credit report from the top reporting agencies (Equifax, TransUnion, and Experian). You’re entitled to a free credit report every week from each company.
2. Identify and address any errors or issues on your credit report (default accounts or incorrect information).
3. Pay all your bills in full on time, every time.
4. Reduce or eliminate revolving debt, especially credit card debt.

Apply with a cosigner 

A cosigner agrees to take full responsibility for your refinanced or private student loan if you, the primary borrower, fail to repay. When you apply without a cosigner, loan eligibility, terms, and interest rates are based on your financial situation only (that is, your credit score, debt, and income).

When you apply with a cosigner, their financial history also determines eligibility and rates. Cosigners with good credit, stable income, and little debt can help you get a better rate. 

Whether the rate is based on your cosigner or in combination with your credit varies by lender.

Even so, in many cases, you might not have any income or credit history when applying for a student loan, so you need a cosigner. Rather than considering your situation, the lender uses your cosigner’s information to set the rates and terms. 

While cosigners have plenty of benefits, the downsides include:

• Cosigners are fully responsible for the loan. If you don’t repay the loan as agreed, your cosigner must do so. When your cosigner signs the loan documents, they take full responsibility for making sure the loan is repaid. 
• Your debt is included in your cosigner’s legal obligations. Because the cosigner is responsible for the loan, the payments are included in their debt-to-income ratio if they get a new loan, even if you’re paying the loan. This situation can cause stress.
• Payment history is also reported on your cosigner’s credit report. When you make payments on the loan, it’s reported on your credit report and your cosigner’s. So making late payments will damage your cosigner’s credit score.
• It can be difficult to remove a cosigner.  Check your lender’s cosigner release policy. Often, a release policy requires the cosigner to remain on the loan until you make a set number of consecutive on-time payments. Some lenders won’t ever release them. 

Keep in mind the concept of cosigners mostly applies to refinanced and private student loans. Your credit score and history generally have no role in the federal student loans you can get and the rate you’ll pay. However, Direct PLUS loans are an exception. 

Direct PLUS loans are federal student loans to parents, graduate students, or professional students. If you have credit problems (e.g., delinquencies, bankruptcies), you may need an endorser to get approved for a Direct PLUS loan. Endorsers are similar to cosigners on private loans.

A significant difference from cosigners on private loans is that endorsers on Direct PLUS student loans only make it so you can get the loan. They have no bearing on the Direct PLUS rates and loan limits, which the federal government sets.

Choose a shorter student loan repayment term

Many private student loan companies offer lower interest rates to borrowers choosing a shorter repayment period. This also decreases the amount you’ll pay in interest throughout the loan term, reducing your overall cost of borrowing. When you apply for the loan, you’ll get multiple term options, often between five and 20 years.

Despite reducing your overall borrowing cost, shorter repayment terms can mean a higher monthly payment. Make sure you can afford the payments so you don’t trade this benefit for late fees, missed payments, and a damaged credit score.

For example, take a look at two example terms below: 

	60-month term	120-month term
Loan amount	$40,000	$40,000
Rate	3.65%	4.50%
Monthly payment	$730.36	$414.55
Total interest cost	$3,821.59	$9,746.44
Additional interest cost	—	$5,924.85

The monthly payment is much lower on the 120-month loan, but you would pay almost $5,925 in additional interest.

Negotiate with your lender 

It may be worth contacting your lender to negotiate a lower interest rate. Some lenders may be willing to negotiate if it means keeping your business and preventing you from borrowing from a different lender or refinancing with someone else. 

Some private lenders also offer rate match guarantees and will beat the rate you find from a competing lender. If you find a better rate from another loan provider, you might be able to use this as leverage to score a lower rate from your current lender. 

How to lower your federal student loan interest rate

Congress sets the rates on federal student loans each year, so you don’t have as many options for lowering your rate as you do with private student loans. However, here are a few steps you can take to save on interest: 

1. Sign up for autopay: You’ll score a 0.25-percentage-point discount on your interest rate by signing up for automatic payments. 
2. Pay off your loans faster: Although making extra payments on your loans won’t lower your interest rate, it will shorten the amount of time you’re in debt and save you money on interest charges overall. A couple of ways to speed up debt repayment are making extra payments on your loans and paying biweekly instead of monthly. 
3. Avoid consolidating your loans: A Direct Consolidation Loan can be helpful in some scenarios—for instance, it can help simplify repayment and make some loans eligible for certain repayment plans. However, consolidating can slightly increase your interest rate. Your new rate after consolidating will be the weighted average of your old rates rounded up to the nearest ⅛ of one percent. Plus, any unpaid interest will capitalize, or be added to your principal balance, thereby increasing your loan costs. 
4. Consider refinancing: Refinancing federal loans could lead to a lower interest rate if you have strong credit or a creditworthy cosigner. But proceed with caution: Refinancing means forfeiting access to federal benefits, repayment plans, and forgiveness programs, and the process is not reversible. This approach only makes sense if you don’t need any federal protections and are confident about your ability to pay back your new, refinanced loan. 

You can see whether you have federal student loans by viewing your personal information on the Federal Student Aid website. 

Your credit report, which you can access for free at AnnualCreditReport, will also contain a list of your private and federal student loans. 

Tip

The federal government sets rates on federal student loans each year, and they don’t vary by repayment term. Even so, just like with a private student loan, you’ll have larger payments with a shorter repayment term but pay less total interest over the loan’s life.

Is it worth it to lower your student loan interest rate?

It’s often worth the effort to lower your student loan interest rate. Even a small reduction in your rate can lead to major savings over the life of your loan. 

For example, this table shows how your monthly payments and long-term borrowing costs change on a $30,000, 10-year loan at different rates: 

Interest rate	Monthly payments	Total interest charges
5%	$318	$8,184
10%	$396	$17,574
15%	$484	$28,081

Lower monthly payments mean more cash flow for your other financial goals, such as saving for retirement, putting together a down payment for a home, or paying off other debts. 

Plus, lowering your monthly student loan payments with a reduced rate could allow you to pay off your education debt faster. By eliminating that monthly student loan payment from your life, you can experience less financial stress and turn your attention to other financial priorities. 

The one caveat concerns refinancing federal student loans, which is risky. Lowering your federal student loan interest rate through refinancing may not be worth it if you’ll need protections such as income-driven repayment or you could qualify for a student loan forgiveness program in the future.