As a student loan borrower, one thing that can often get in the way of making progress on your debt is the interest you have to pay on your loans.
I know that was the case for me when I was paying off my Grad PLUS loans. They had an interest rate of 7.90%. I was paying hundreds of dollars each month in interest, which felt criminal.
If you’re like me, you may be wondering, “Can I negotiate student loans interest rates?” Read on to find out the answer.
Can You Negotiate Student Loans Interest Rates?
Interest rates on your federal student loans are set by Congress each year. Unfortunately, this can be bad news for borrowers looking to negotiate their interest rate.
“The interest rates on federal education loans are set by law and cannot be negotiated,” confirms financial aid expert Mark Kantrowitz of Cappex.com.
So if you have Grad PLUS or Parent PLUS loans, which tend to have higher interest rates, you’re stuck with that rate.
It’s not a situation where you can just call your loan servicer and try 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 a pretty ineffective strategy for student loans.
While there is no surefire way to negotiate student loans interest rates, there are ways you can get a small interest rate reduction.
“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%,” says Kantrowitz.
How to Negotiate Student Loans with a Private Lender
As with most cases, private student loans have a different set of rules and regulations.
Some private student loan borrowers may be eligible for an interest rate reduction through autopay. But your interest rate is based on a whole different set of criteria.
“Terms of private student loans are set by the lender,” explains Kantrowitz. “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.”
Depending on your credit score and a number of factors, your interest rate could potentially be higher than your federal student loans. One possible way of lowering the interest rate on your private student loans is by having a cosigner.
“You might be able to get a lower interest rate by using a cosigner who has a much better credit score, but you cannot haggle with the lender over the interest rate,” says Kantrowitz.
However, having a cosigner is something you should think about seriously as a cosigner is legally liable for your debt if you are unable to pay.
In recent years there have been complaints about getting hit with auto-default after a cosigner’s death. Additionally, it can be tough to get approved for cosigner release as well. Keep that in mind if you decide at some point you want to release the cosigner from your loans.
Exceptions to the Rule
In general, you cannot negotiate student loans’ interest rates. However, there are extenuating circumstances where your loan servicer or lender may work with you. But, the cases are extremely rare.
“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,” adds Kantrowitz.
In many of these cases, the student loan borrowers illustrated financial hardship that is 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,” says Kantrowitz.
Loan servicers and lenders can be notoriously inflexible and play by the rules. When they do bend the rules, it’s under pretty rare circumstances.
Other Options for Lowering Your Interest Rates
By now you’ve probably realized that the possibility of lowering your interest rate on your student loans is pretty much not going to happen. However, there is a roundabout way you can lower your interest rate.
While you can’t negotiate student loans interest rates with your current lender, you can refinance with another lender. This would potentially get you a lower interest rate.
Student loan refinancing is the process of combining all of your student loans into one monthly payment and having one interest rate — hopefully one that is lower.
If approved for a lower interest rate, you could potentially save thousands of dollars per year. Student loan refinancing is a great way to save money on interest and make your student loan payments easier to manage. However, it’s not for everyone.
If you have federal student loans, you do forfeit any loan forgiveness options as well as any income-driven plans if you decide to refinance. If you don’t plan on taking advantage of those options, you have good credit and a stable job, student loan refinancing is a great alternative for lowering your interest rate.
Interest on your student loans can be a real bummer, especially when your interest rate feels so cumbersome.
Although it may seem impossible to negotiate student loans interest rates, you may be able to refinance with another lender and save money on interest that way. Just be sure to do your research and make sure it’s the right move for you.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% 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 Month/Day/Year, 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 08/21/18. 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@example.com, or call 888-601-2801 for more information on ourstudent 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 Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 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.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|