Many students use both private and federal student loans to pay for their education expenses. If you’re considering taking out a student loan to pay for your education or are already making student loan payments and want to secure a lower interest rate, you have options available to you that can help you save money and better manage your student loan debt.
Here are some ways you can lower your student loan interest rate.
Explore All Your Student Loan Options
If you are taking out student loans for the first time, it’s important that you research all your options and choose your loans carefully. Deciding what types of loans to take out can be one of the toughest parts about starting your education, but it could make a big difference in your interest rate and monthly payments.
Whether you opt for subsidized or unsubsidized federal student loans with fixed rates, private loans, or both, choosing a loan with the lowest interest rate and favorable loan terms can help you save thousands of dollars. Take your time to look into every loan option available and compare interest rates to decide which option is best for you.
Negotiate With Your Lender
If you’re already borrowing private student loans or have refinanced, you still have some bargaining power. Consider shopping around for the most competitive rates and going back to your lender with those rates to negotiate a better rate. The lender may match the better rate or lower your current rate to maintain your business. This is especially worth trying if you secured your student loans when interest rates were higher, and lenders are now offering more favorable rates.
Work With a Cosigner
As with other types of loans, if you have little-to-no credit history or bad credit, applying for a student loan with a co-signer who has a strong credit history can help you get approved for better rates. When lenders review your application and find that one of you has good credit, they will look at your application more favorably than if you applied on your own. However, both signers need to understand the responsibilities and risks involved if payments are not made on time or default on the loan.
Refinance Your Student Loans
If you have good-to-great credit, have a good-paying job, and intend to pay off your loan quickly, you may wish to consider refinancing your student loans into a private loan to get a lower interest rate. This is one of the most effective ways to lower your rate and save each month. Most private lenders don’t charge fees to originate new loans, and repayment plans do not include early repayment penalties, so there is no harm refinancing multiple times to get the best rate.
When you go this route, your new lender will pay off your previous lenders, and you’ll make payments only to the new lender. Refinancing can help you not only get a lower interest rate but pay off your loan faster.
However, for student loan borrowers who have federal aid, it’s important to understand that when you refinance into a private loan, you may lose federal protections, such as forbearance periods. This may not be the best option for students pursuing the Public Service Loan Forgiveness Program or who participate in an income-driven repayment plan, as refinancing can change your eligibility for these programs. It’s up to you to weigh your options to determine which loans will benefit you more.
Automate Your Loan Payments
One of the most simple ways to reduce your student loan interest rate is to automate your payments. Many lenders provide discounts for autopay users. Doing so can help ensure you don’t have any late payments, negatively affecting your credit score.
Take Advantage of Loyalty Discounts
Besides auto-pay discounts, some lenders provide rate discounts to loyal customers who have previously borrowed or have an existing account with them. While small, these loyalty discounts, along with your automated payment discounts, can add up.
Boost Your Credit Score
As with any type of loan, the better your credit score, the more likely you will be approved for financing with better rates and terms. This is especially true for private student loans. While federal loans for undergrads don’t require a credit check, private loans do. And although private lenders will still allow you to take out student loans with bad credit, you must pay higher interest rates. Having a strong credit score when you apply can help you secure a more competitive interest rate from your lender and save you money.
Invest in Your Human Capital Today
Student borrowers with less competitive interest rates have a host of options available to lower their student loan interest rate. From refinancing to automating payments, there are many ways to save on student loans.
At T&I Credit Union, we make it easier for you to invest in your human capital with student loans through our partner, Student Choice. Contact us at (248) 397-9456 today to see if you qualify for a lower rate.