Most borrowers often consider the question of whether they can negotiate a lower interest rate on federal student loans.
This was rattling around my mind as I was paying off my grad PLUS Loans. Thanks to an interest rate of 7.9%, I was paying hundreds of dollars each month in interest alone — it felt criminal.
Unfortunately, I soon discovered that my federal loan rates weren’t up for negotiation. However, I did learn how to reduce interest rates on student loans in other ways, including by enrolling in automatic payments, scoring loyalty discounts and refinancing debt elsewhere.
Here are four questions to answer in order to learn how to lower the interest rate on your student loans, regardless of whether they’re federal or private:
1. Can you get a lower interest rate on federal student loans?
2. Can you reduce your interest rate on private student loans?
3. Does refinancing reduce the interest rate on student loans?
4. What if you can’t get a lower interest rate on your loans?
Interest rates on your federal student loans are set by Congress each year — which is bad news for borrowers looking to get a deal on their interest rate.
“The interest rates on federal education loans are set by law and cannot be negotiated,” financial aid expert Mark Kantrowitz told Student Loan Hero.
So if you have subsidized or unsubsidized direct student loans, grad PLUS or parent PLUS loans (which tend to have higher interest rates), you don’t get an option to request a lower rate from the federal government.
|Federal student loan rates for 2020-2021|
|Direct subsidized loans and direct unsubsidized loans (undergraduates)||2.75%|
|Direct unsubsidized loans (graduate students)||4.30%|
|Direct PLUS loans (graduate students, parents)||5.30%|
|Have an older federal loan? Look up the interest rate via the StudentAid.gov website.|
Nor can you call your loan servicer to negotiate student loan interest rates — that strategy may work with some credit cards, and you should definitely try if you have credit card debt. However, it’s ineffective for student loans.
Still, while there’s no way to negotiate student loan interest rates on federal loans, there is a way you can get a small reduction on your interest rate.
“With federal and private student loans, borrowers who agree to repay the loan through auto-debit, where the monthly payment is automatically transferred from your bank account to the lender, can get an interest rate reduction of 0.25 or 0.50 [percentage points]”, Kantrowitz said.
So as long as you’re not worried about overdrawing on your bank account, consider putting your student loan payments on auto-pay to save on interest.
While federal student loan interest rates are set by federal law, private loan rates are more flexible. The rate you get depends on a number of factors, which can include your (or your cosigner’s) credit and income. The stronger your credit, the better your rate could be.
Since lenders set the rates, it seems possible they might be open to negotiation. But here too, according to Kantrowitz, there’s little room to haggle over price, and lenders aren’t likely to change their mind once they’ve assigned a rate.
“Terms of private student loans are set by the lender,” Kantrowitz said. “However, I have never seen a lender negotiate the interest rate on a new loan. They use formulas based on the credit score of the borrower and cosigner, if any.”
Your best bet, then, is to compare multiple private loans to find the lowest rate before you borrow, but you should also see if adding a cosigner could help. (And if you’ve already borrowed, you might try your hand at student loan refinancing.)
“You might be able to get a lower interest rate by using a cosigner who has a much better credit score,” says Kantrowitz.
Note that, just as with federal loans, some private lenders also offer an autopay discount on your interest rate, typically for 0.25 percentage points. In addition, some banks offer an additional loyalty discount if you have a separate account with them. Citizens Bank, for example, will lower your interest rate by 0.25 percentage points if you’re a returning customer.
Private lenders might lower interest rates in cases of hardship
In most cases, you probably won’t have much luck asking your private lender for a lower interest rate. But if you’re really struggling to pay back your loan, your lender might be willing to work with you.
“The main situations in which I’ve seen borrowers successfully negotiate a reduction in the interest rate or loan balance — as opposed to a different repayment plan — involved borrowers who were in default and in a ‘you can’t squeeze blood from a stone’ situation,” Kantrowitz said.
In many of these cases, the student loan borrowers proved serious financial hardship that was unlikely to improve anytime soon.
“I’ve also seen cosigners whose borrower defaulted on the loan negotiate with the lender to remove the default from their credit history and reduce the interest rate in exchange for the cosigner agreeing to make the monthly payments via auto-debit,” Kantrowitz said.
Loan servicers and lenders can be notoriously rigid, so when they do bend the rules, it’s under pretty rare circumstances. If you haven’t borrowed yet, it could be worth exploring lenders who let you pause payments in the event you lose your job or return to school.
By now you’ve probably realized that the possibility of lowering your interest rate on your student loans just by asking is difficult to achieve. However, there’s a simpler way to lower your interest rate — refinancing your student loans.
If you have the credit score and income to qualify (or can apply with a creditworthy cosigner), refinancing could get you lower rates on one or more of your loans.
Refinancing also gives you a chance to restructure your debt with new terms and combine multiple loans into one, thereby simplifying repayment. For example, you may be able to take advantage of CommonBond’s flexible repayment options or Laurel Road’s competitive low rates and fees.
Of course, you’ll want to be careful about refinancing federal loans with a private lender, since it means you’d lose access to federal repayment plans and forgiveness programs.
If you’ve thought through the pros and cons, student loan refinancing could be a savvy way to save money on interest and make your monthly payments easier to manage. And you won’t have to go through an awkward phone call with your loan servicer trying — and probably failing — to negotiate your interest rate.
Maybe you’ve already enrolled in autopay or scored a loyalty program discount and discovered that refinancing isn’t the right move for you. Fortunately, there are other ways to cut down on your interest payments even if you’re not able to reduce your rate.
- Get on the right repayment plan: Staying on the standard repayment plan for federal loans, for example, can keep you on pace to end your debt within a decade. Still, there’s no shame in switching to an income-driven repayment plan if it works better with your cash-flow. For private loans, you might ask your lender about your options, or reconsider refinancing to a shorter or longer loan term.
- Consider the debt avalanche method: This repayment strategy calls for you to pay off your highest-interest debt first (while paying the minimum on your lower-interest loans). If you go this route, you’ll maximize your interest savings.
- Take up more strategies to pay off student loans faster: It’s simple: The faster you pay off debt, the less time there is for interest to accrue, capitalize and take a bite out of your checking account. To minimize interest payments, see if you have room in your budget to make extra (large) payments toward your principal. Tax refunds, wage raises, side hustles — every little bit helps.
Note: This report was originally published June 29, 2016.
Interested in refinancing student loans?Here are the top 9 lenders of 2022!
|Lender||Variable APR||Eligible Degrees|
|1.74% – 8.70%1||Undergrad & Graduate|
|1.74% – 7.99%2||Undergrad & Graduate|
|1.74% – 7.99%3||Undergrad & Graduate|
|1.89% – 5.90%4||Undergrad & Graduate|
|1.74% – 7.99%5||Undergrad & Graduate|
|2.05% – 5.25%6||Undergrad & Graduate|
|1.86% – 6.01%||Undergrad |
|N/A7||Undergrad & Graduate|
|1.99% – 8.38%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms 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. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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 4, 2022.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.
3 Important Disclosures for SoFi.
Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
4 Important Disclosures for Laurel Road.
Laurel Road Disclosures
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.
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 April 29, 2021. Information and rates are subject to change without notice.
5 Important Disclosures for Navient.
6 Important Disclosures for LendKey.
Refinancing 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.
7 Important Disclosures for PenFed.
Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. 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.
8 Important Disclosures for CitizensBank.
Education Refinance Loan Rate Disclosure: Variable interest rates range from 1.99%-8.38% (1.99%-8.38% APR). Fixed interest rates range from 2.99%-8.63% (2.99%-8.63% APR).
IS Variable Rate Disclosure: Variable Rates advertised are 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 December 1, 2021, the one-month LIBOR rate is 0.09%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. Your final variable rate may be based upon the 30-day average SOFR index, as published by the Federal Reserve Bank of New York. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
ERL Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of May 1, 2022, the 30-day average SOFR index is 0.29%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.