Can you negotiate student loan interest rates?
This was the question in my head 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 lower student loan interest rates another way.
Here’s what you need to know about how to lower the interest rate on your student loans, whether they’re federal or private.
Can you negotiate student loan interest rates?
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,” said financial aid expert Mark Kantrowitz of SavingforCollege.com.
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.
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%,” 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.
Private lenders determine their own interest rates
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 credit you have, the better the rate you could get.
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 offers to find the lowest rate before you borrow, but you should also see if adding a cosigner could help.
“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 a 0.25% discount on your interest rate for setting up autopay on your loans.
Some private lenders are more flexible than others
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 offer flexibility (such as deferment or forbearance) in the event you lose your job or go back to school.
Refinance your student loans for better rates
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 to 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.
But 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.
Bottom line: Negotiating interest rates vs. refinancing
So can you negotiate student loan interest rates just by asking nicely? Probably not. But can you refinance for better rates? Definitely, as long as you can qualify.
Most lenders probably aren’t open to negotiating except in rare circumstances. Unless you’ve found yourself in dire financial straits, you’re unlikely to have much luck asking for a reduction in interest payments.
But refinancing might be able to get you a better rate and save you money on your debt. And if you haven’t borrowed loans yet, make sure to shop around with a few lenders before picking one. That way, you can find a loan with the best possible rate to finance your education.
Rebecca Safier contributed to this report.
Note: This report was originally published June 29, 2016.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.34%4||Undergrad & Graduate|
|1.97% – 8.54%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|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 October 1, 2020.
2 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 September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To 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 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 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 10/26/2020. 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 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 11/13/2020 student loan refinancing rates range from 1.97% to 8.54% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.