How to Lower Your Student Loan Interest Rate: 7 Easy Ways

Student loan interest can quietly add thousands of dollars to the total cost of your education, but the rate you’re paying isn’t always set in stone. Whether you’re still in school or already in repayment, there are practical strategies that can help reduce your interest rate and lower what you pay over time. 

This guide walks through seven straightforward ways to potentially cut your student loan interest and keep more money in your pocket.

1. Refinance Your Student Loans 

Refinancing your student loans may help you lower your student loan interest rate. The rate you’re offered depends on your financial situation and credit. Federal student loans are changed to private student loans through refinancing, so you’ll no longer be eligible for federal benefits and forgiveness programs.

You can attempt to refinance a loan into a new one at a new interest rate. You can also combine all or only certain student loans into a larger education loan at a fixed or variable interest rate.

Fixed vs. Variable Rates

Private lenders, like commercial and local banks, credit unions, and online lenders, may offer the choice between a fixed- and variable-rate loan. 

A fixed rate offers the security of a set interest charge and predictable monthly payment. Variable student loan rates might start competitively lower than your current rate, but can increase throughout your term making it riskier if you can’t realistically pay a higher monthly payment. 

The biggest disadvantage of refinancing is switching your federal loans to a private student loan. This results in losing access to valuable government protections, like income-driven repayment plans and advantageous loan forgiveness programs.

2. Automate Your Payments 

Automating your payments offers multiple benefits in addition to potentially lowering your student loan interest rate. The immediate benefit is that some lenders offer their borrowers an interest rate discount as incentive to set up autopay.

For example, some lenders offer a 0.25% interest rate discount for borrowers who enroll in automatic payments. Autopay gives lenders added assurance that you’ll provide on-time loan payments each month. 

Making on-time payments every month also accounts for 35% of your FICO® score.  FICO score is a particular brand of credit score modeling, a number that is used to predict how likely you are to pay back a loan on time.

Setting up autopay gives you the extra advantage of never missing a payment so you maintain a positive payment history.

Recommended: How to Check Your Credit Score

3. Use the Advantage of Loyalty Discounts

Returning customers are sometimes rewarded by lenders through discounts that lower student loan interest rates. For example, if you already have deposit and other consumer loan accounts with a financial institution — like a checking and savings account, and an auto loan — you might be eligible for an extra rate discount. Check with your bank to see if you qualify.

4. Build Your Credit

Building your credit is a long-term strategy for getting a lower student loan rate. Private student loan lenders base your interest rate on different factors, including your credit history and score.

A “good” FICO score is at least 670. If you’re wanting to refinance your current loans or are interested in borrowing a private loan in the future, examine where your credit currently stands. 

Requesting a free copy of your credit report through AnnualCreditReport.com is a good first step to assessing where you can focus on boosting your credit. Every 12 months, you can submit a single request for your report from all three credit bureaus: Experian®, Equifax®, and TransUnion®.

5. Work With a Cosigner 

Adding a cosigner who has strong credit to your next private student loan can help you secure a lower student loan interest rate. When including a cosigner on your loan agreement, you’re still considered the primary borrower, but that person is legally liable for repaying the debt if you fail to do so.

Make sure you and your cosigner are on the same page about repayment expectations, if you choose this strategy. Some lenders include a “cosigner release” option.

In this scenario, you’ll need to meet the lender’s credit and payment requirements to remove your cosigner from your loan agreement. If you’re successful, you get to keep the same interest rate and terms after releasing your cosigner.  

6. Choose Your Loans Carefully 

Many factors can affect your student loan interest rate. For example, federal student loans offer one set interest rate for all borrowers that never changes throughout the loan term. 

Conversely, private lenders also offer fixed-rate loans, but each lender will offer you a rate within a range. For example, a fixed-rate range might look like 3.55% to 6.50% and your interest rate is determined by your credit, income, area of study, and other factors. Private lenders also have a range for their variable student loan rates, based on the details of your application.

Before taking out a new student loan or refinancing your student loans, learn more about the true cost of your loan and your interest rate. Determine whether fees apply, and if the lender offers a lower interest rate range or rate discounts that can help lower your student loan interest.

Recommended: How Does Student Loan Refinancing Work?

Need Lower Student Loan Refinance Rates? See Lantern's Options 

Refinancing your student loans can be a useful strategy. However, be sure to consider the pros and cons of student loan refinancing, including the fact that if you refinance federal student loans, you’ll lose access to federal benefits and loan forgiveness eligibility. 

Lenders might offer different refinance rates based on their own eligibility requirements and your credit. If you’ve decided that refinancing some or all of your student loans is right for you, explore student loan refinancing rates across multiple lenders.

Lantern can help you explore student loan refinance options.