How to Lower Your Student Loan Interest Rate

For 44.5 million student loan borrowers, student loan debt has become a way of life. Collectively, U.S. outstanding student debt is more than $1.6 trillion, with the average 2018 borrower graduating with $28,565.

Paying down your loan balance can be difficult, and high interest rates make it harder. The good news is you can take steps to potentially decrease your rates on private student loans and save hundreds or thousands of dollars over the life of your loan. 

In this guide:

• 3 tips to lower interest rates on student loans you already have
• 5 tips to reduce your student loan interest rate if you haven’t taken out a loan yet
• Federal student loan interest rates

3 tips to lower interest rates on student loans you already have

Whether you’ve had your loans for a few months or several years, the interest rate you have may not be the best one you can get. The longer you wait to find the best rates, the more money you’ll pay in interest. 

Reducing your interest rate can help you secure lower monthly student loan payments, pay off your loans faster, and save money over the life of your loan. 

Here are a few ways to reduce the student loan interest rate on your existing private loans:

1. Refinance your loan

One way to lower interest rates during student loan repayment is to refinance the loan, meaning you take out a new loan to pay off the existing ones. This could lower your interest rate or lower your monthly payments by extending your repayment term—or both.

Refinancing usually makes the most sense if you are able to secure a lower interest rate. Here are a few reasons you might get a lower rate on private student loans:

• You’ve improved your financial situation: A higher income or lower debt-to-income ratio can signal to lenders that 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 frequently fluctuate with the market, and you may find they are lower now than they were when you took out your loan.

If you think your situation could result in a lower interest rate, your best bet is to shop around for potential lenders and compare rates.

Although the interest rate should be a primary focus of your search, be sure to also consider these additional factors that can affect the cost of your new loan:

• Origination fees
• Prepayment penalties
• Available repayment terms
• Additional perks a lender offers

Before you start shopping, check your credit score. If you have a good or excellent score, it may be easy to find lower rates. But if your credit score is fair or poor, refinancing may not make sense until you can rebuild it. 

Compare your options in our list of best student loan refinancing companies, or use our student loan refinance calculator to compare your options based on available interest rates and repayment terms.

2. Sign up for autopay

It should come as no surprise that lenders prefer that borrowers make regular, on-time payments. Automatic payments make that happen. To encourage it, many lenders offer a rate reduction—typically 0.25 points—to borrowers who sign up for autopay.

Though a 0.25-percentage point discount may not sound like a lot, the savings can add up: If you have a $35,000 loan with a 20-year repayment plan at 8%, that 0.25 reduction in the rate could save you $1,301 over the life of the loan.

Autopay can also make loan payment more convenient, giving you one less thing to worry about each month. You’ll just need to monitor your bank account to make sure you have enough to cover the payment.

3. Always pay your bill on time

Completing the previous step can help you knock out this one at the same time.

Some lenders may offer discounts to borrowers who consistently make regular, on-time payments, although the discount and eligibility requirements vary.

You’ll likely need to meet your lender’s repayment history requirements (e.g., 24 months in a row). Check with your lender or loan servicer to find out whether this incentive is available.

5 tips to reduce your student loan interest rate if you haven’t taken out a loan yet

Don’t have an existing loan? You don’t have to wait until you’ve signed your promissory note to get a new interest rate. If you’re just starting the loan search, these tips could help you secure better student loan rates.

1. Compare quotes

Whenever you’re looking for a loan, whether it’s a student loan or otherwise, one of the best things you can do is shop around. 

Obtain quotes from at least three of the best student loan lenders. As you compare quotes, note interest rates based on various repayment terms, as rates often fluctuate based on the term.

Not sure where to start? Check out our list of the best low-interest student loans.

2. Look for loyalty discounts

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

For instance, Wells Fargo customers can get a 0.25-point rate discount if they have a qualifying checking account or existing student loan. Similarly, SoFi offers private student loans with a 0.125-point interest rate reduction to members who take out a new loan.

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

3. Improve your credit score

Though many factors determine your interest rate, your credit score usually carries significant weight. Improving your score before you apply for a loan can get you a lower interest rate on student loans. 

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

• Get a copy of your credit report from the top reporting agencies (Equifax, TransUnion, and Experian). Identify and address any issues (default accounts, incorrect information, etc.). 
• Pay all your bills in full on time, every time.
• Reduce or eliminate revolving debt, especially credit card debt.

4. Apply with a cosigner

A cosigner is an individual who agrees to take full responsibility for the 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 is also used to determine eligibility and rates. A cosigner with good credit, stable income, and little debt can help you get a better rate.

Select your cosigner carefully, and make them aware of the risk to their credit score if you don’t meet your repayment obligations. 

Also, check your lender’s cosigner release policy. Typically, a release policy will require the cosigner to remain on the loan only until you make a set number of consecutive on-time payments.

5. Choose a shorter repayment term

Lenders typically offer lower interest rates to borrowers who choose a shorter repayment period. This also decreases the amount you’ll pay toward interest throughout the loan term, reducing your overall cost of borrowing.

Despite this benefit, shorter repayment terms often 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.

Federal student loan interest rates

Rather than on your credit score or repayment term, federal student loan interest rates are set by Congress based on the type of loan you take out.

That rate will go up and down based on the 10-year Treasury Note auction and are updated every year on July 1.

To reduce interest rates on federal loans, you’ll have to refinance with a private lender, but be cautious about giving up the flexibility and protections offered by the U.S. Department of Education loans, such as deferment and the possibility of student loan forgiveness.