With outstanding student loan debt of more than $1.7 trillion in the United States, student loans are a way of life for many Americans. Paying off your student loan balance can be challenging—even more so if you have a high interest rate.
You have options to reduce your interest rate, lower your payments, or both. This can save you money in the long run.
We’ll share tips on ways you can reduce your rate and make your student loans more manageable.
In this guide:
- How to lower current student loan interest rates
- How to lower your student loan interest rate if you haven’t taken out a loan yet
How to lower current student loan interest rates
Lowering your rate can help you secure lower monthly student loan payments, pay off your loans faster, and save money over the life of your loan. However, before you take steps to lower your interest rate, you must determine whether you have federal or private student loans.
Federal student loans are issued by the U.S. government and carry many benefits, such as:
- Lower fixed interest rates
- More flexible repayment terms
- Loan forgiveness programs
- Relief programs for financial hardships
Private student loans are issued by private lenders and don’t have these same benefits.
Locate your student loans
You can see whether you have federal student loans by viewing your personal information on the Federal Student Aid website.
You can find your private and federal student loans by accessing your free credit report every 12 months at AnnualCreditReport.com. You can also contact your school, which should have a record of your loan servicers.
Keep in mind the interest rates on federal student loans are set by the U.S. government and can’t be negotiated. However, these are often lower than private student loans. You can refinance a federal student loan with a private one, but this is risky because you’ll lose federal benefits.
You can also consider consolidating your federal student loans using the U.S. government’s Direct Consolidation Loan program. You get to keep the federal loan benefits, and your new rate is the weighted average of the loans you consolidate. If you have student loans, these additional tips might help you lower your rates.
Refinance your student loan with a lower interest 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. Benefits of refinancing may include lowering your interest rate, reducing your monthly payments with a longer term, or both.
For example, see the example scenario below of a borrower refinancing their private student loan:
| Example only | |||
| Pre-refinance balance | $35,000 | Post-refinance balance | $35,000 |
| Pre-refinance interest rate | 10% | Post-refinance interest rate | 5% |
| Pre-refinance time left on loan | 4 years | Post-refinance repayment term | 5 years |
| Pre-refinance monthly payment | $774 | Post-refinance monthly payment | $553 |
Reasons you may be able to benefit from a lower rate on private student loans include:
- 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 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. Refinancing makes the most sense if you can get a lower rate.
If you think your situation could result in a lower interest rate, make sure to shop around for potential lenders and compare rates. In addition to rates, consider other potential costs, such as origination fees and prepayment penalties, which may cut into your interest savings.
Also, before going through with a refinance, consider your total interest costs. Even if you get a reduced rate, you might pay more interest over time if you extend the term. A lower monthly payment can be beneficial, but a downside is paying more interest in the long run.
You may be able to refinance your federal student loans with private student loans to get a lower rate, but ensure the savings outweigh the costs first. If you might need federal loan benefits in the future, it’s best to keep the loans as is. To begin comparing options, check out our list of the best student loan refinancing companies.
Sign up for autopay to lower your student loan interest rate
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.
Though a 0.25-percentage point discount may not sound like a lot, 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 get a 0.25-percentage point rate reduction on all Direct federal student loans when you sign up for autopay. 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 payment more convenient. You’ll need to monitor your bank account to ensure you have enough to cover the payment.
How to lower your student loan interest rate if you haven’t taken out a loan yet
If you’re just starting the loan search, these five tips could help you secure better student loan rates on your private student loans.
Compare student loan quotes to find the lowest interest rate
Request quotes from at least three of the best private student loan lenders. As you review the quotes, pay attention to APRs for various repayment terms. The benefit of spending the time to rate-shop is the ability to find the most desirable rate.
As you compare rates, you may notice lenders offer different rates for similar loans. If you notice this, check whether you’re comparing annual percentage rates (APRs) to interest rates. APRs also include fees, such as origination fees, so they may be higher than the stated rates.
Rates also vary because every lender has a different business structure and appetite for risk. When lenders set rates, they need to 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 may be worth accepting a higher rate if you’ll get a discount on your loan or other services.
- No prepayment penalty. Some lenders charge a fee if you repay your loan early. If want the option to pay off your loan early, you might choose a loan with no prepayment penalty even if the rate is higher.
- 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 extra.
Not sure where to start? Check out our list of the best low-interest student loans or see current student loan interest rates.
Look for loyalty discounts on student loan interest rates
Some private student 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 with a qualifying checking account or an existing student loan. SoFi offers private student loans with a 0.125-point interest rate reduction to members who take out a new loan.
Pay close attention to the loyalty discount terms if you pursue this option. 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 to lower the interest rate on your student loans
Though many factors determine your interest rate, your credit score often carries significant weight. Improving your score before you apply for a loan can get you a lower interest rate on student loans.
Depending on what you’re trying to fix on your credit, it may take as little as a month or up to several years to correct the issues. For example, you may see improvements the month after you pay down your credit card balances. In contrast, it may take up to seven years to eliminate late payments.
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. When you’ve reached a “very good” credit score range, incremental rate improvements are often minimal.
The following steps can improve your credit score and help you reduce student loan interest rates:
- Get a copy of your credit report from the top reporting agencies (Equifax, TransUnion, and Experian). Federal law entitles you to a free credit report every year from each company.
- Identify and address any errors or issues on your credit report (default accounts, incorrect information, etc.).
- Pay all your bills in full on time, every time.
- Reduce or eliminate revolving debt, especially credit card debt.
Apply with a cosigner on student loans to lower your interest rate
A cosigner agrees to take full responsibility for your 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. Since 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 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 key 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 to lower your interest rate
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 term options.
Despite reducing your overall borrowing cost, 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.
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 payment is much lower on the 120-month loan, but you would pay almost $5,925 in additional interest.
Remember: The federal government sets rates on federal student loans each year, and they do not 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.