Student loan debt is one of the most common forms of debt, given that at least 71% of all college students graduate with some form of student loans. Paying off your student loans can require a lot of dedication, persistence, effort, and money since you will end up paying more than your original loan as a result of interest.
Some graduates pay tens of thousands of dollars extra over the life of their loan repayment term due in large part to their interest rate. This is why borrowers should always be on the lookout for ways to lower the interest rate on their loans if it seems too high. A lower student loan interest rate means potentially lower monthly payments and less of your money going toward the interest and more toward the principal balance.
Here are three ways to lower your student loan interest rate.
Choose Automatic Payments
If you have federal student loans, after your grace period, you will be prompted to set up automatic payments for your minimum monthly payment. The government offers to slightly lower your interest rate if you choose this option. Private lenders may offer something similar, but you should reach out to your specific lender to see what options they have so you can lower your interest rate right off the bat.
Having your minimum payment automatically withdrawn each month is an easy way to reduce your student loan interest rate, and it can also simplify your payments since you won't have to worry about submitting them on-time each month. If you don't pay your student loans on-time, you can suffer consequences including possible late fees, so this option would eliminate that entirely.
Consolidate Your Loans
While consolidation is mainly intended to help simplify your payments by combining all your loans into one loan with one interest rate, you can also utilize this option to lower your monthly payments and your interest rate. If you're looking for a relief solution that can go into effect quickly, consolidation may be an option for you because it can allow you to secure a lower interest rate that is an average of the rates for your original loans, along with extending your term if needed.
If your repayment term is extended, you will probably pay more in interest over the life of your loan, even if your rate is lower, because you will need to make more payments. On the other hand, you can always put more toward the balance each month instead of just paying the minimum the entire term. That way, you can make the most of your lower interest rate by paying off your debt quicker.
Refinance Your Loans
Refinancing is similar to consolidation, only you can only refinance your loans with a private lender, while consolidation is available through a federal lender. Refinancing your student loans includes obtaining a new private lender with new loan terms so you can use the loan to pay off your current student loan balance. Then, you will just be left with your private loan.
Refinancing can be a good option if your student loan interest rates are very high. If your financial situation has improved since you graduated college, lenders should be able to offer you a better interest rate when you apply after they examine your credit situation and income. You can use our student loan refinance calculator to see exactly how much money a student loan refinance could save you.
If you choose to refinance your federal loans to lower the interest rate, just keep in mind that you will no longer be eligible for federal loan relief programs like deferment, forgiveness or income-based payment plans. If your goal is to pay off your loans quickly in less time, refinancing would be a viable option. If you think you may need to take advantage of government relief programs in the future, or don't have much saved up in the event of an emergency, you may want to weigh your options further before making a final decision.
If you're ready to get rid of your student loans once and for all, securing a lower interest rate is the key to accelerating your progress. Keep these three options in mind as you work to reduce your rate.