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

Q: Can you deduct interest payments from your taxes?

Yes, the Student Loan Interest Deduction lets you deduct the amount of interest you paid during the tax reporting year from your tax return. You can deduct student loan interest paid on federal and private student loans, with a maximum benefit limit of $2,500 for the year.

Q: What can you do if you don’t get a lower student loan interest rate?

If you refinanced your student loan, but didn’t get approved for a lower student loan interest rate, you can check with your lender to ensure you’re receiving all of the interest rate discounts you are eligible for or possibly negotiate a lower rate. You can also work on strengthening your credit score and refinance at a later time.

Q: How does a lower student loan interest rate affect your credit score?

A lower student loan interest rate doesn’t directly affect your credit score. However, a lower rate can help you reduce your total student loan cost. Additionally, if all other variables remain the same, a lower rate can result in a lower monthly payment, which makes maintaining a positive payment history more manageable.

How to Lower Your Student Loan Interest Rate

Jennifer CaloniaUpdated August 4, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Achieving a lower interest rate can help you shave thousands of dollars from your total education costs. There are several ways to reduce your student loan rate, such as refinancing your education loans.Here's everything you need to know about lowering your student loan interest rates.

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. Both federal and private student loans can be refinanced into a private student loan. You can choose to refinance a single 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

This strategy is typically provided by private lenders, like commercial and local banks, credit unions, and online lenders. Many offer the choice between a fixed- and variable-rate loan. A fixed, lower student loan interest 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 results in losing access to valuable government protections, like income-driven repayment plans if your income drops for an extended period, 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, 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.

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.For example, existing Citizen Bank customers who refinance their student loan with the bank receive a 0.25% loyalty discount on top of its 0.25% autopay discount.

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 repaying an existing private student loan 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 Co-signer

Adding a co-signer who has strong credit to your next private student loan can help you secure a lower student loan interest rate. When including a co-signer 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 co-signer are on the same page about repayment expectations, if you choose this strategy. Some lenders include a “co-signer release” option.In this scenario, you’ll need to meet the lender’s credit and payment requirements to remove your co-signer from your loan agreement. If you’re successful, you get to keep the same interest rate and terms after releasing your co-signer.

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: Why Do My Student Loans Keep Rising and What Can I Do?

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 as you’ll lose benefits, like loan forgiveness eligibility. You’ll also be ineligible for loan forgiveness and income-based repayment.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, compare rates across multiple lenders.

Frequently Asked Questions

Can you deduct interest payments from your taxes?

What can you do if you don’t get a lower student loan interest rate?

How does a lower student loan interest rate affect your credit score?

Photo credit: iStock/SDI Productions

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About the Author

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.

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