Wouldn’t it be nice to pay your student loans off faster?
One way to do this, whether you have federal or private student loans, is to reduce your interest rate. Here’s how you can get lower interest rates on student loans, so you can be out of debt sooner:
- Refinance your student loans
- Sign up for automatic payments
- Ask about loyalty discounts and more
- Make on-time payments
1. Refinance your student loans
Refinancing allows you to take out a new loan to pay off all your other loans and then you’d make payments to your new lender. You’ll get new terms as well as a new interest rate.
Refinancing is a great option to get a lower interest rate, but it’s not always guaranteed. If you’re struggling to qualify, consider the following:
- Your credit score: If you have low or subprime credit, it could be holding you back from qualifying for a refinance. If you’re looking for ways to lower your monthly student loan payments, work on building your credit score up to get the lowest interest rate available.
- Your income: Lenders want to make sure you can afford to pay the loan back. If you don’t have a steady job with a reliable income, it might be hard to refinance your student loans.
- A cosigner: If your credit score and income are holding you back, try to find someone else to help. A cosigner can sign on your new loan to help you qualify for a loan and lower interest rate. Keep in mind that if you fall behind on payments, your credit score will take a hit — so will your cosigner’s.
Not all lenders will offer you the same rate or terms. Because of this, you’ll want to compare the best student loan refinance lenders before you make a decision.
If you’re still on the fence, see if you should refinance your student loans. It might work for some, but it’s not for everyone.
2. Sign up for automatic payments
One of the quickest — and easiest — ways to get a discounted rate is to check if your lender offers an automatic payment discount. Most autopay reductions are 0.25%, which might not seem like a lot but every little bit helps. If your total student loan debt is $40,000, for example, that small discount can save you more than $600 over the life of your loan.
|Without the 0.25% discount||With the 0.25% discount|
|Total amount repaid||$55,238.63||$54,625.23|
Autopay is also a great way to always stay current on your loans. You’ll never fall behind on payments, which your lender appreciates and will keep you in good standing. You can also improve your credit by keeping a positive payment history.
3. Ask about loyalty discounts and more
Some lenders offer additional discounts in addition to autopay. For example, Discover offers a 2% graduation reward that can be applied to many loans (if they qualify); Citizens Bank offers a loyalty discount of 0.25%. You have the option of a direct deposit into your bank account or a statement credit to your student loan balance(s).
Ask your lender if there are any other discounts you qualify for, and you might be surprised at how much lower you can get your rate.
4. Make on-time payments
On-time payment history is the biggest determining factor in your credit score. It also gives lenders a chance to reward you for good behavior.
Some lenders offer an interest rate discount after a specific amount of on-time payments have been received. For example, some might offer a 1% discount after 36 months or 2% after 48 months of on-time payments. This isn’t offered by every lender, though, so ask yours if it’s available.
What to do if you can’t lower your student loan interest rates
If you’re not successful with lowering your interest rates, you still have other ways to tackle your student loans. Here are a few other ways you can pay your loans off faster:
1. Pay more each month
Try making larger monthly payments rather than the minimum amount due. While you may not lower your interest rate, you’ll end up paying less in interest over the life of the loan since you’ll pay off student loans sooner.
You can also work towards making an extra payment on your student loan, whether it’s every other month or once a year. Consider making full payments twice a month, too, if your budget allows it.
2. Avoid alternative payment plans
Income-driven repayment plans are great if you can’t afford to make on-time minimum payments every month. But they can extend your loan terms from 10 years to 25 to 30 years. That’s a long time to be paying back your loans.
If you stick to the standard repayment plan, you’ll be paid in full within a decade. When you extend your loan term you end up paying more in interest for those extra 15 to 20 years. That’s a lot of extra money.
3. Focus on your highest interest debt
If you’re paying off multiple loans at once, you may have a few different interest rates. Create a document that lists all your loans, including what you owe, the monthly payment, and interest rate.
While making minimum payments on all your loans, put any extra money you can toward your highest interest debt. Work on paying off this loan first while staying current on your other ones. Once the loan with the highest interest is paid in full, start to focus on the next-highest interest. Do this until all your loans are paid off. It will help you save money in interest over time.
Tackle your high student loan interest rates
Reducing your student loan interest rates isn’t always the easiest task, but it’s still possible. Refinancing and comparing lenders is a good way to see if you’re able to pay less in interest on your loans.
But it’s not always right for everyone. Consider looking into auto-pay, since most lenders value on-time payments. It can also improve your credit score.
If you’re still struggling to get a lower interest rate on your student loans, take control of your payments now. Don’t sign up for income-driven repayment plans and start making larger payments toward higher-interest loans.