Paying interest on your student debt can feel like getting punched when you’re down. Your five- or six-figure principal can remain stubbornly stagnant when the bulk of your payment is going to the interest.
Getting a lower interest rate can soften the blow. Here’s how to get one.
Refinance your loans
When you refinance, you trade your existing loans for a new loan with a lower 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.
- Comfortable cash flow, meaning enough income to afford your student loan payments and other bills, like rent and credit cards, without feeling too squeezed.
Before you swap your current loans for one with a lower rate, make sure you know the trade-offs. For instance, when you refinance federal loans, you’ll lose borrower protections including access to income-driven repayment plans and forgiveness programs.
If you decide to refinance, shop around to find the lowest rate you qualify for. More than a dozen lenders offer student loan refinancing. You can get rate estimates directly through lenders’ websites or compare lenders on NerdWallet’s student loan refinance page.
Automate your payments
Refinancing is the main way to lower your interest rate, but you can also shave a little bit off your rate by signing up for autopay, even if you don’t refinance. Many lenders, including both federal and private ones, offer a 0.25% interest rate discount when you sign up to have your payments automatically deducted from your bank account. Plus, autopay can calm your anxiety about accidentally missing a payment.
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 wipe out your student loans quicker and save on interest in the process. Contact your lender or federal student loan servicer and ask it to apply the extra payments to your loan principal instead of the interest.
With these tricks in your back pocket, you can tackle your interest and inch closer to being debt-free.