When you borrow for school, you end up paying back more money than the actual amount initially borrowed. Why? Because lenders charge interest when you borrow money. The higher the interest rate, the more you’ll have to pay — and the more difficult student loan repayment becomes.
Comparison shopping to find loans offering the best student loan interest rates is important. We’ll help you get started with some key information about how student loan interest works.
We’ll also help you figure out the federal student loan interest rate and private student loan rates so that you’ll have a better idea of what you may need to pay when you borrow for school.
Understanding the federal student loan interest rate
The federal student loan interest rate is set by the government. The rates are standardized — meaning that everyone who is eligible pays the same interest rate — but they can change from year to year. In fact, rates went up in 2018, so students borrowing for the 2018-19 academic year will pay more than those who borrowed last year.
Rates have gone up and down on federal student loans, so it’s important to know the interest charge before borrowing. This table shows how interest rates have fluctuated over the past five years for different types of federal student loans.
|Type of Loan||Direct Subsidized Loans||Direct Unsubsidized Loans for Undergrads||Direct Unsubsidized Loans for Grad Students||Direct PLUS Loans|
|Who’s the loan for?||Undergrads with demonstrated financial need||Undergrads regardless of need||Grad students regardless of need||Grad students or parents of dependent undergrads|
|Interest rates for 2014-15||4.66%||4.66%||6.21%||7.21%|
|Interest rates for 2015-16||4.29%||4.29%||5.84%||6.84%|
|Interest rates for 2016-17||3.76%||3.76%||5.31%||6.31%|
|Interest rates for 2017-18||4.45%||4.45%||6.00%||7.00%|
|Interest rates for 2018-19||5.05%||5.05%||6.60%||7.60%|
|Note: New rates take effect July 1 of each year.|
Those interest rates can cause your loans to balloon. For example, if you had the average student loan balance of $39,400 with a 5.05% interest rate and a $419 monthly payment, you’d pay over $10,000 in interest fees over 10 years. In total, you’d pay back more than $50,000.
But there are ways to save money on interest, including refinancing student loans to a lower rate or paying off your loans more quickly.
Once you fully understand how student loan interest rates work, you can create a plan that works for your finances and helps you pay less interest over time.
Understanding private student loan rates
While federal student loan rates are standardized by the government, there is much more variation in private student loan rates since lenders can decide how much interest to charge borrowers.
It’s important to shop around among private student loan providers to compare interest charges and find the best student loan rates. As of Sept. 19, 2018, rates from top lenders vary between 3.69% and 12.99%, but rates fluctuate and your credit score and other factors affect the interest you’ll pay.
At first glance, these private student loans might seem tempting since they can start at lower interest rates than federal ones. But it’s harder to qualify for these low rates, and these loans might carry more risk than federal student loans.
That’s because federal student loans come with protections such as access to income-driven repayment (IDR) plans, forbearance and deferment, and even student loan forgiveness options. With private loans, you don’t have access to perks such as IDR plans or forgiveness.
But private student loans can be a useful tool. If you exhaust all your federal student loan options and still need more money to complete your degree, private loans can help fill the gap so that you can finish school.
Your loan term affects the amount of student loan interest you pay
Your interest rate is one of the major factors determining how much you pay back on your federal or private student loans. But the length of time you take to repay your loan also makes a big impact.
While repaying your loan over a longer time allows you to have lower monthly payments, this approach means you’ll pay much more in interest. You can use our student loan term comparison calculator to see how loan terms affect the total amount you’d pay. We’ve done this for you below with a $28,000 loan at 5% interest to showcase how much repayment periods matter.
As you can see, the longer you hold the loan, the more it’ll cost. Although the five-year plan comes with much higher monthly payments, following the 25-year plan will cost you $17,402 extra in the end.
How to reduce the student loan interest you pay
Because student loan interest charges can add so much to your educational costs, it’s a good idea to explore options to reduce your expenses. Following these steps can help you save money.
1. Before you borrow: Apply for scholarships and grants
One of the best things you can do is to apply for grants and scholarships. Unlike student loans, which you have to repay, scholarships and grants are free money that you don’t have to pay back. Plus, you can apply for and receive multiple grants and scholarships, lowering how much you need to borrow in student loans.
Devote an hour or two every week to finding grants and scholarships and applying. You can also meet with your college’s financial aid office to see if there are institutional aid programs for which you qualify.
2. Once you borrow: Try to boost your income to pay your loans down faster
Besides scholarships, launching a high-paying college side hustle can make a huge difference in reducing your reliance on student loans.
And if you’ve already graduated, you can also look into side hustle opportunities that you can do while working full time. If you apply all the extra income straight to your loans, you can really get ahead on repayment. Our extra payment calculator shows how much of an impact these extra payments make.
3. Once you’re stable: Refinance your student loans
Once you graduate, refinancing your student loans can be a great option for lowering your interest rates.
When you refinance your loans, you can take out a new loan with completely different repayment terms. You could qualify for a loan with a lower interest rate, different repayment period, and even a lower monthly payment.
Refinancing does have some drawbacks to keep in mind. For example, if you refinance federal loans, you’ll lose out on access to IDR plans and loan forgiveness. You also won’t get borrower protections such as the ability to defer loan payments.
But if you’re focused on become debt-free as quickly as possible, refinancing with a lower-interest loan can help you pay off your loan ahead of schedule.
Understanding how student loan interest works helps you make smart choices
For new and current borrowers alike, student loan interest rates can be extremely frustrating. After all, it’s bad enough to enter adulthood with tens of thousands of dollars in debt, much less to have to pay interest on it.
But now that you what factors determine the interest you pay, you can make smart choices for dealing with your debt.
Shannon Insler contributed to this post.
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.
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 3.45% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.81% APR (with Auto Pay) to 6.49% 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 November 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 11/06/2019. 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 email@example.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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
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. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of November 8, 2019 and is subject to change.
4 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.
5 Important Disclosures for CommonBond.
Offered 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 1.9299999999999997% effective October 10, 2019.
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 11/07/2019 student loan refinancing rates range from 1.90% to 8.65% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.
7 Important Disclosures for College Ave.
College Ave Disclosures
College 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 09/23/2019. Variable interest rates may increase after consummation.
|1.81% – 6.49%1||Undergrad & Graduate|
|2.31% – 7.36%2||Undergrad & Graduate|
|1.99% – 6.65%3||Undergrad & Graduate|
|2.43% – 7.60%4||Undergrad & Graduate|
|2.02% – 6.30%5||Undergrad & Graduate|
|1.90% – 8.65%6||Undergrad & Graduate|
|2.74% – 6.24%7||Undergrad & Graduate|