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 is $393.
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 a lower student loan interest rate can help you save money and become debt-free sooner.
How to score 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 save money — and get rid of your student loans faster — by netting a lower student loan interest rate. Here are three ways to do it.
- Sign up for automatic payments
- Receive rate discounts by meeting other criteria
- Refinance your student loans with a private lender
1. Sign up for automatic payments
One of the easiest ways to lower your student loan 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. If your $10,000 loan at 5.00% interest were 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.
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, and it’s even possible while you’re still in school. 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. Receive rate discounts by meeting other criteria
Whether enrolling in autopay is right for your repayment or not, it’s not the only way to score a rate discount.
Here are a handful of other discount types offered by competitive lenders.
| Criteria | Rate discount | Lender |
|---|---|---|
| Opening a “loyalty” bank account with your lender | 0.25% | Citizens Bank |
| Being a repeat customer | 0.125% | SoFi |
| Submitting six straight on-time payments | 0.50% | MPower Financing |
| Submitting 36 straight prompt payments | 0.25% | SunTrust Bank |
Some lenders also offer cash bonuses or balance reductions for graduating, posting high marks in the classroom or referring a fellow borrower. Although these rewards won’t directly result in a lower student loan interest rate, they could help you make an extra — or extra-large — monthly payment. That would help you whittle down your interest charges, if only for a single month.
Examples of these lender offers include:
3. Refinance your student loans with a private lender
If you have high-interest federal or private education debt, 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 net a lower student loan interest rate.
Here’s an example of the low-interest student loans for which you could qualify.
If you had a $10,000 loan at 5.00% 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 5.00% interest.
You could decrease your interest charges even further by choosing a variable rate over a fixed rate. Variable rates typically start lower but could creep up, as they hinge on greater market forces, making them a riskier proposition.
You might also receive a discounted rate by taking advantage of your professional association’s referral program. SoFi, for example, has offered rate discounts between 0.125% and 0.25% to members of the American Occupational Therapy Association and the American Academy of Family Physicians.
Any money saved via refinancing 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 also make a big difference in your cash flow.
But if you don’t qualify for either option, don’t get discouraged. There are other ways to take charge of your loans and pay them off sooner.
Kat Tretina, Honey Smith and Andrew Pentis contributed to this article.
Interested in refinancing student loans?
Here are the top 6 lenders of 2020!| Lender | Variable APR | Eligible Degrees | |
|---|---|---|---|
 | 1.99% – 7.10%1 | Undergrad & Graduate | |
 | 1.99% – 6.65%2 | Undergrad & Graduate | |
 | 1.99% – 6.24%3 | Undergrad & Graduate | |
 | 2.39% – 6.01% | Undergrad & Graduate | |
 | 1.99% – 5.64%4 | Undergrad & Graduate | |
 | 3.18% – 6.06%5 | Undergrad & Graduate | |
| Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Splash Financial. Splash Financial DisclosuresSplash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member. The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website. You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans. Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020. Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan). Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
2 Important Disclosures for Laurel Road. Laurel Road DisclosuresAll 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. As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount. Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate. Interest Rate: A simple annual rate that is applied to an unpaid balance. Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%. KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. This information is current as of June 23, 2020. Information and rates are subject to change without notice. 3 Important Disclosures for SoFi. SoFi Disclosures
4 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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product. © 2020 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. 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 0.18% effective July 10, 2020. |
|||
