How to Lower Student Loan Interest Rates

If you’re hoping to pay off your student loans fast, the best place to start is by lowering your interest rate. When you lower your interest rate, you’ll be charged less money in interest each month and, ultimately, for the whole loan.

And if you’re stuck in a high-interest loan, it will be harder to get ahead on your monthly payments, since you’re paying that interest rather than the principal balance. If you’re like most borrowers, then paying back your student loans has been a frustrating process. Fortunately, there are several ways you can lower interest rates on student loans.

On this page:

• How Are Student Loan Rates Calculated?
• Explore Your Refinancing Options
• Decrease Your Effective Interest Rate by Repaying Loans Quickly
• Additional Options

How Are Student Loan Rates Calculated?

There are many different variables when it comes to your student loan interest rates. With federal loans, the Department of Education adjusts the student loan interest rate for each school year. All eligible students qualify for this rate no matter what their credit history looks like.

However, private loans are given based on a borrower’s credit history. Private lenders look at things like your credit score, the loan amount requested, whether or not you have a cosigner, and so on to give you the best rate available to you. 

Private loans may also come with variable or fixed interest rates. Variable rates can change over time with the market while fixed rates remain the same. All federal loans come with fixed rates.

Explore Your Refinancing Options

Over the course of your education, you may end up taking out multiple loans through multiple lenders including the government. This means that your loan portfolio will include several different interest rates and some will be lower than others.

Student loan refinancing through a private lender will replace your existing loans that you choose to refinance with a new loan and hopefully a lower interest rate. When you refinance student loans, it can help you restructure your repayment term as well.

So instead of having multiple monthly payments to various lenders, you’ll have a single monthly student loan payment if you opt for student loan refinancing. Of course, there is no guarantee you will receive a lower rate with the refinance loan; that will depend largely on your credit history and financial situation. Having a good credit score and repayment history will help when it comes to refinancing and getting the lowest rate offered. 

Decrease Your Effective Interest Rate by Repaying Loans Quickly

Another easy way to save on interest is by repaying your loan balances more quickly than your repayment plan calls for. Your loan payments are divided into principal and interest. By paying off student loans early, you’ll reduce the effective interest you’ll pay. While you won’t receive an actual interest rate reduction for paying your loans more quickly, less interest will accrue each month, saving you money.

Of course, this idea sounds simple in theory, but it can be challenging for recent graduates who don’t have a lot of extra income. The important thing is to just put any extra money you can toward your loans.

Even if you can only afford an additional $50 per month, that’s a good start. Then you can gradually work on increasing your extra payments.

Some borrowers choose to supplement their monthly income by taking on a side job. Then you can take the extra money you earned in your side job and apply it to your student loan payments.

Consider Other Options

There are other ways you can lower student loan interest rates. For instance, many banks offer an interest rate discount for setting up automatic monthly payments.

Most student loan servicers will offer a 0.25 percentage points discount for enrolling in autopay and you make payments directly from your bank account automatically each month. This obviously isn’t going to save you a ton of money on your student debt, but every little bit counts. Also, autopay can help ensure you never make a late payment.

You should also check to see if you are eligible for the student loan interest deduction on your federal taxes. Most young student loan borrowers are eligible. This will allow you to deduct up to $2,500 on your taxes every year for the interest you pay on your student loans.

And finally, check with your employer to see if they have a student loan repayment benefit. Student loan repayment benefits are a growing trend in the U.S and some employers may be willing to pay a certain amount towards your student debt each month.

Bottom Line

Hopefully, this article has shown that your student loan interest rate can usually be reduced. Student loan debt, whether from federal student loans or private student loans, is a burden for many Americans but with a little planning, you can repay your debt faster and easier.

Consider using any combination of these strategies to lower student loan interest.