Lower Student Loan Interest Rate – Student loans can be a huge financial burden for the borrower, but there may be ways to get relief. While some programs can help with debt repayment or forgiveness, most borrowers don’t qualify. Instead, consider looking for opportunities to lower your student loan interest rates. Depending on your situation, there are a number of different methods you can apply, and in some cases you may benefit from more than one.
Student loan refinancing is the process of replacing one or more existing federal or private student loans with new ones through a private lender.
Lower Student Loan Interest Rate
Graduating and becoming financially established can give you the opportunity to build a strong credit history and good credit score. If that’s the case, your interest rate may be lower than what you’re currently paying when you refinance your loan.
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This process involves checking the credit that a private lender will use to help determine if you qualify and what interest rate you will receive. In most cases, you can get an interest rate quote before you apply that will give you a good idea of what you qualify for and how much you can save.
Not sure where your credit stands? You can check your credit score for free through other providers to help understand your chances of getting a low score. Your credit score will show you the areas you can improve so your score can be in the best possible shape before you officially apply.
To give you an idea of how much you can save, let’s say you have $20,000 in student loan debt with a 10-year repayment period and an average interest rate of 5.5%. If you have to pay off the debt with an interest rate of 3.5% and in the same repayment period, your monthly payment will drop by $19 and you will save $2,314 over 10 years.
The more student loan debt you have and the bigger the difference in interest rates, the more you’ll save. Use the online student loan calculator to find out how much you can save based on your situation.
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However, keep in mind that if you refinance federal student loans, you may miss out on a number of benefits, including:
Also, it’s important to note that refinancing is different from student loan consolidation, which is a federal loan program that is only available to federal borrowers and does not offer low interest rates.
If you’re considering refinancing, start by getting pre-qualified with several lenders to understand what you qualify for and how much you can save. If you have a federal loan, be sure to weigh those savings against the cost of losing benefits from a federal loan.
Most importantly, it may be better to suspend federal loans for 2021 until CARES Act student loan payments are suspended and President Biden offers more certainty about the possibility of partial cancellation.
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Many student lenders and service providers offer interest rate discounts to borrowers who arrange automatic payments. In most cases the interest rate discount is 0.25%, so if your rate is 5.5% using autopay it will be reduced to 5.25%.
Lenders and service providers offer this discount because it costs them less than the process of collecting missed payments. Making your payments automatically also helps because missed payments often result in penalties and can also hurt your credit score if you’re 30 days or more late.
When you refinance your student loan, the best way to lower your interest rate is to choose a shorter repayment period. Depending on the lender, you may be able to shorten your term to 5 years, half of the standard 10-year repayment period for federal student loans.
Lenders often offer lower interest rates on shorter repayment terms because they are less risky for them in two ways compared to longer repayment terms:
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That said, the shorter repayment period comes with a higher monthly payment. So run the numbers before you practice to make sure you can afford it without overstretching your budget.
If you have a federal student loan, interest rates are set by Congress and are not negotiable. In contrast, private student loan companies set their own interest rates and may have some room for negotiation.
It is unlikely that you will be able to lower your interest rate this way unless you are in financial trouble and need a modified repayment plan. Still, it can be a tough sell. But it can still be tried if you have no other choice.
Having a low interest rate can save you a lot of money as you work to pay off your student loan debt. But whether it works or not, there are steps you can take to pay back your loan faster and save more this way.
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If you have room in your budget, consider adding it to your monthly payments. This additional payment will go directly to the original balance instead of interest which will speed up your repayment.
Alternatively, you can split your monthly payment in half and make payments every two weeks. Over several months, the total amount will be equal to your regular monthly payment. But there are 52 weeks in a year, which means 13 full monthly payments instead of 12.
If you don’t have enough cash flow to pay extra, consider starting a side business to make extra money. Then you can plan to organize all the money you earn from your student loan once you get it.
Take your time to research and compare business opportunities to find the best option for you based on your interests and available time.
Student Loan Debt Consolidation
Most student loan borrowers can deduct the interest they pay on their student loan when they file their taxes. This deduction lowers your revised gross income, which is an important step in calculating your tax bill.
It won’t directly help you pay off your debt quickly unless you know enough to do the math to figure out how much the deduction saved you and put it toward your mortgage. But with good credit, you can find exactly what you need.
If you are seriously considering repaying your student loan, either now or in the future, your credit profile will look better and your interest rates will be lower. Building credit can take a long time, but the extra savings can be worth it.
Start by reviewing your credit score and reviewing your credit report to understand your overall credit status and what negatively affects your credit score. Then take steps to resolve potential problems, such as high credit card balances and past due accounts.
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If you want to refinance as soon as possible but don’t have a stellar loan, consider asking a loved one with good credit to co-sign your loan application. While this arrangement isn’t ideal, it can be a good option if your credit has some major issues that will take a long time to resolve.
Apply for a student loan with confidence and find an offer that fits your credit situation and is based on your FICO.
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The opinions expressed here are solely those of the authors, not those of any bank, credit card issuer, or other company, and have not been reviewed, endorsed, or approved by any of these entities. All information, including interest rates and fees, is accurate as of the date of publication and is updated as provided by our partners. Some of the offers on this page may not be available through our website.
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How To Lower Student Loan Interest Rates
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