3 Ways to Lower Your Student Loan Interest Rate

Teddy NykielJune 14, 2018

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A lower student loan interest rate could reduce your monthly payments or help you become debt-free faster. Here’s how to get a lower interest rate on federal or private student loans.

1. Refinance student loans

When you refinance, you trade your existing loans for a new, private loan with a lower interest rate. Your new lender will pay off your old lenders, and you’ll make payments to the new one going forward.

To qualify for student loan refinancing, you typically need:

  • Good to excellent credit. You’ll need a score that’s at least in the high 600s, or a co-signer with good credit. The higher your — or your co-signer’s — score, the lower the interest rate you’ll qualify for.

  • Comfortable cash flow. You need enough income to afford your student loan payments and other bills, like rent and credit cards, without feeling too squeezed.

If you’re ready to refinance, compare student loan refinance lenders to find the lowest rate you qualify for. Refinancing isn’t a good option if you want to pursue Public Service Loan Forgiveness or make lower payments through an income-driven repayment plan — you’ll lose access to those programs if you refinance federal student loans.

Run the numbers

2. Automate your payments

Refinancing is the main way to lower your interest rate, but you can also save by signing up for autopay — even if you don’t refinance. Many federal and private lenders offer a 0.25% interest rate discount when you sign up to have your payments automatically deducted from your bank account. It’s sometimes called an ACH discount, which stands for automated clearing house. Contact your servicer to find out if the discount is available for your loans.

Another benefit of autopay: It can calm your anxiety about accidentally missing a payment. Just make sure you have enough in your bank account each month to avoid getting hit with overdraft fees.

3. Snag a loyalty discount

Some lenders offer loyalty discounts in addition to the ACH discount.

For example, Wells Fargo offers an additional 0.25% discount for student loan borrowers or co-signers who have a Wells Fargo consumer checking account or existing student loan. College Ave offers an additional 0.25% discount for its student loan refinance customers who have an account with Nationwide Bank.

Fractions of a percentage point may not sound like much, but these discounts can add up. On $30,000 of debt with a 6% interest rate, saving 0.25% in interest means you’d pocket $450 over 10 years. If you got a 0.50% rate reduction on the same loan by snagging the ACH discount and a loyalty discount, you’d save almost $900 over 10 years.

Can’t get a lower rate? Don't panic

Refinancing isn’t for everyone, and a 0.25% discount goes only so far. But there are other ways to save on interest.

  • Prioritize your high-interest student debt first: If you’re tackling your student loans aggressively, direct your extra payments to those with the highest interest rate. But don’t neglect your other loans; pay the minimum amount due on all of your debt each month to avoid defaulting.

  • Stick to the standard repayment plan: You’ll be done paying your loan — and the interest — after 10 years if you stick to the standard federal repayment plan. While income-driven plans may sound appealing because they can lower your monthly payment, they also increase the total amount of interest you pay.

  • Pay off your loan faster: This one’s easier said than done. But if you rework your budget or get a side hustle, you can pay off your student loans faster and save on interest in the process. If you pay more than the minimum payment, ask your lender or federal student loan servicer to apply the extra payments to your current balance instead of your next payment.