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

How to Lower Your Student Loan Interest Rate
Jennifer Calonia
Jennifer CaloniaUpdated August 11, 2022
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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 percent 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. Boost Your Credit Score 

Improving 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. During the COVID-19 pandemic, the credit bureaus are offering weekly access to your credit report online.

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.

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

Refinancing your student loans  can be a useful strategy. However, consider your options before refinancing federal student loans as you’ll lose benefits, like loan forgiveness eligibility. You’ll also be ineligible for emergency federal student loan relief, like the administrative forbearance on federal loan payments and interest during the COVID-19 pandemic.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.
Photo credit: iStock/SDI Productions
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. SOLC0222046

Frequently Asked Questions

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About the Author

Jennifer Calonia

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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