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7 Ways to Get the Lowest Interest Rate on Student Loans

June 19, 2018
Loans, Student Loans
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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

All federal loans issued each year have the same, fixed interest rate — regardless of the borrower’s credit. Private student loans, on the other hand, have wide-ranging interest rates.

For instance, the current student loan interest rates for private loans range from 5.25% to 14.53% for fixed rates and 3.69% to 12.99% for variable rates.

Current rates for student loan refinancing range from 3.09% to 8.72% for fixed rates and 2.47% to 8.17% for variable rates.

These ranges are wide because they account for differences in borrowers’ credit profiles and loan terms, among other factors. Whether you’re taking out a private loan for the first time or refinancing your existing college debt with a private lender, do all of the following to get the lowest rate on student loans:

If you don’t have good credit or access to a co-signer who does, you’ll likely get the lowest student loan interest rate with a federal student loan.

But if you’re pursuing private student loans or student loan refinancing, it’s worth applying even a few of these interest-saving tips. On $30,000 of student loan debt, for instance, a 5% interest rate would save you $30 a month and more than $3,600 over 10 years compared to a 7% interest rate.

Shop around

Different lenders offer different interest rate ranges, so compare private student loans to ensure you get the best rate you qualify for. Look at the annual percentage rates, the most accurate way to compare interest rates. The APR reflects the loan’s true cost including accrued interest, capitalized interest and any origination fees that apply.

Have excellent credit

Private student loans are credit-based, which means the interest rate you get depends on your credit history. Generally, the higher your credit score, the lower the interest rate you’ll qualify for. In addition to credit history, lenders typically evaluate income and other debt owed. The higher your income compared to your total outstanding debts, the more likely you are to qualify for a lower interest rate.

Don’t have excellent credit yet? If your credit improves in the future, you can lower your interest rate by refinancing your student loans.

Apply with a co-signer

If you don’t have excellent credit or a high enough income, you’ll likely qualify for a lower interest rate by applying with a co-signer who has good credit and a solid income. Your co-signer will be responsible for making payments if you don’t. However, they don’t have to be on the hook forever — many lenders allow a co-signer release after the primary borrower makes on-time payments for a certain amount of time.

Get any discounts that apply

Some lenders offer discounts for borrowers who choose certain repayment options or have a bank account with their financial institution. Lenders’ discounts include:

  • College Ave: Student loan refinancing customers get a 0.25 percentage point interest rate reduction for signing up for autopay and an additional 0.25 point discount if autopay is hooked up to a Nationwide Bank account, for a total possible rate discount of half a percentage point.
  • Discover: Get a 0.35 percentage point rate reduction for signing up for interest-only payments during the application process and making interest-only payments while you’re in school and throughout your grace period.
  • Sallie Mae: Your interest rate will be one percentage point lower if you choose the interest repayment option instead of the deferred repayment option. With the interest repayment option, you’ll pay the interest that accrues monthly while you’re in school and during your grace period. After your grace period, you’ll begin making full monthly payments.
  • SunTrust: Get an interest rate discount of 0.25 point for signing up for autopay and an additional 0.25 point reduction if your automatic payments are made from a SunTrust bank account, for a total interest rate discount of half a percentage point.
  • Wells Fargo: You’ll get a 0.25 percentage point interest rate reduction if you or your co-signer already have a Wells Fargo student loan, or if you or your co-signer have or open a Wells Fargo consumer checking account. You’ll get a reduction of 0.5 points if you or your co-signer are part of the Portfolio by Wells Fargo program.

Decide between a fixed and variable rate

Variable student loan interest rates typically start out lower than fixed rates. However, variable rates are subject to rise monthly or quarterly, depending on the lender. Fixed rates stay the same throughout the life of the loan. If you’re planning to pay your loan off very quickly, choosing a variable rate might make sense. However, student loan interest rates are generally increasing as the Federal Reserve continues raising the federal funds rate.

Pick the shortest loan term you can manage

Lenders typically offer a few options for the loan’s term, or the length of the repayment period. Generally, you’ll get the lowest interest rate by choosing the shortest loan term. You’ll also save on interest because you’ll be paying interest for a shorter period of time. On the flip side, a shorter loan term means your monthly payments will be higher, so choose the shortest term you can comfortably manage.

Sign up for autopay

Most federal and private lenders offer a 0.25 point interest rate reduction for borrowers who sign up to have their monthly payments automatically deducted from their bank account. Often, the rate ranges that lenders advertise include the autopay discount.

In addition to saving you money, signing up for autopay can also bring peace of mind: You won’t have to worry about accidentally missing a payment.

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