If you’re like most student loan borrowers, your monthly payment eats up a significant amount of your paycheck. The average monthly student loan payment for 20-somethings is $351.
But much of that monthly payment doesn’t help eliminate your debt. Instead, it pays off accrued interest. In some cases, interest charges can even cause your loan balance to grow over time. This can happen if you’re on an income-driven repayment plan and you don’t have low-interest student loans.
As such, qualifying for lower student loan interest rates can help you save money and become debt-free sooner.
How student loan interest works
When you take out a loan, you sign an agreement to repay your loan with interest. Your lender will set up a minimum monthly payment that covers part of the accrued interest and the principal.
For example, if you had a $10,000 loan at 5% interest for 10 years, your monthly payment would be about $106. But over the life of your loan, only $83 of that payment would go toward your principal balance, on average. The remaining $23 goes toward interest charges.
Because only a part of every payment goes toward the principal, you will pay your lender more than the original $10,000 you borrowed. If you just made the minimum payment of $106 for 10 years, you’d pay back a total of $12,728. That’s $2,728 more than you borrowed thanks to your interest rate.
Use our student loan payment calculator to run the numbers for your specific situation. Regardless of what your interest charges come out to be, you can save money — and get rid of your student loans faster — by lowering your student loan interest rates.
How to get a lower student loan interest rate
Although you signed a contract with your lender agreeing to repay the loan at a particular interest rate, you’re not stuck with that rate forever. You can lower your rate if you meet certain criteria.
1. Sign up for automatic payments
One of the easiest ways to lower your interest rate is to enroll in automatic payments. Federal student loan servicers (and many private loan lenders) offer you a 0.25% discount on your interest rate if you allow them to automatically withdraw the minimum payment from your bank account each month.
If that 0.25% reduction doesn’t sound significant to you, do the math to see how the change would affect you over time. If your $10,000 loan at 5% interest was reduced to 4.75% for the length of your loan, you’d pay back $12,582 in total.
That’s a savings of $146. It’s not a huge difference, but it’s still money back in your pocket.
But loan servicers don’t offer this benefit out of the goodness of their hearts. They do it as an incentive to get you to enroll in automatic payments, which reduces the risk of you falling behind on your payments. It’s also more convenient for you.
Enrolling in automatic payments is free and easy. But you’ll need to stay on top of your finances to make sure enough money is in your bank account when the automatic payment is processed. Otherwise, you could get hit with overdraft penalties and fees.
To set up automatic payments, you can contact your loan servicer online or over the phone. You’ll need to provide them with your bank account number and routing number.
You can also usually choose a date each month for your lender to withdraw your payment. For example, if it’s easier to make your payments right after your paycheck arrives, you can set the withdraw date for the day after payday.
2. Always pay your bill on time
Some lenders offer an interest rate reduction, usually 0.25%, if you make three or four years of consecutive on-time payments. Signing up for automatic payments can help ensure you never miss a payment, helping you take advantage of this extra discount.
Most lenders will apply the discount to your account automatically once you’ve made the necessary number of payments. But it’s your responsibility to make sure your payments always arrive on time. One missed payment will make you ineligible for the discount.
3. Refinance your student loans with a private lender
If you have high-interest federal or private student loans, refinancing can be a useful tool to get a lower student loan interest rate and save money. With refinancing, you work with a private lender to take out a new loan to repay some or all of your current debt with low-interest student loans.
The new loan is completely different from your old ones. It will have a new interest rate, monthly payment, and repayment term.
If you have good credit, a steady income, and a cosigner, you could qualify for the lowest rates that student loan refinancing companies have to offer. That makes refinancing one of the most cost-effective ways to reduce your interest charges. Here’s an example of the low-interest student loans for which you could qualify.
| Lender | Variable rates | Fixed rates |
| First Republic | Not available | 1.95% – 4.45% |
| SoFi | 2.14% – 7.84% | 3.49% – 7.94% |
| Earnest | 2.14% – 6.79% | 3.45% – 7.49% |
If you had a $10,000 loan at 5% interest and qualified for refinancing at 3.15% interest, you’d pay back $11,671 over 10 years. You’d save $1,057 by refinancing your student loan, compared with what you’d pay at 5% interest.
That money could go a long way to paying off your debt faster or help you pursue other goals, such as saving for retirement.
But refinancing isn’t for everyone. For one, you need to be employed, meet minimum income requirements, and have a strong credit history. If you don’t have those things, you might be ineligible for refinancing unless you get a cosigner to act as a guarantor on the loan.
Even then, you might still need a cosigner to qualify for low-interest student loans.
Also, refinancing can be risky if you have federal loans. You’ll lose out on certain federal perks, such as access to income-driven repayment plans and federal forgiveness programs, so it’s important to weigh the benefits and drawbacks of refinancing before applying.
Accelerating your debt repayment
A lower student loan interest rate can help you save money. Refinancing your student loans or qualifying for an interest rate reduction could make a big difference in your cash flow.
But if you don’t qualify for either option, don’t get discouraged. There are still ways you can take charge of your loans and pay them off sooner.
Kat Tretina and Honey Smith contributed to this article.
Interested in refinancing student loans?
Here are the top 7 lenders of 2019!| Lender | Variable APR | Eligible Degrees | |
|---|---|---|---|
| Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Earnest. Earnest DisclosuresTo qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application. Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of September 6, 2019, and are subject to change based on market conditions and borrower eligibility. Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. The information provided on this page is updated as of 09/06/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on our student loan refinance product. © 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America. 2 Important Disclosures for SoFi. SoFi Disclosures
3 Important Disclosures for Laurel Road. Laurel Road DisclosuresFIXED APR However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account. VARIABLE APR However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account. All credit products are subject to credit approval. Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com. 4 Important Disclosures for Splash Financial. Splash Financial DisclosuresTerms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. 5 Important Disclosures for CommonBond. CommonBond DisclosuresOffered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.19% effective August 10, 2019. 6 Important Disclosures for LendKey. LendKey DisclosuresRefinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution. 7 Important Disclosures for College Ave. College Ave DisclosuresCollege Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. 1College Ave Refi Education loans are not currently available to residents of Maine. 2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation. 3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. 4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 08/01/2019. Variable interest rates may increase after consummation. |
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 | 2.14% – 6.79%1 | Undergrad & Graduate | |
 | 2.14% – 7.84%2 | Undergrad & Graduate | |
 | 2.43% – 6.65%3 | Undergrad & Graduate | |
 | 2.43% – 7.60%4 | Undergrad & Graduate | |
 | 2.14% – 8.01%5 | Undergrad & Graduate | |
 | 2.06% – 8.93%6 | Undergrad & Graduate | |
 | 2.74% – 7.24%7 | Undergrad & Graduate | |
