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5 Ways You Can Lower Your Student Loan Interest Rate


Blog Author ProfilePeppyWallet Editorial Team
Posted on August 10, 2019
PeppyWallet aims to help you make the best financial decisions when it's time to make them. In order to help maintain our platform and services, some or all of the products featured in this post are from our Product Partners. Our opinions however, are our own, and featuring specific products does not influence our analysis.
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Student loan payments account for quite a chunk of an average student loan borrowers monthly expenses, and average out at around $393. This could be around half of your monthly rent expense and for most borrowers, it certainly exceeds the sum of a typical auto payment and the insurance payment for that vehicle as well. It's important to understand the options you have when it comes to potentially reducing your monthly payments and overall interest to give yourself some breathing room.

If your income improves or a co-signer is willing to lend a helping hand, you could qualify for a lower student loan interest rate, which can help you save money on interest over the term of the loan, reduce your monthly payments and even get out of debt faster.

Here are 5 ways you can lower your student loan interest rate:

1. Make automated payments

We can't stress the first one enough, since it's probably the easiest. You can start off saving by signing up for autopay feature for your student loan. Many private lenders and even federal loans can offer you a rate discount, or an ACH discount, which is typically 0.25% of your initial interest rate, if you sign up to have your monthly student loan payments automatically extracted from your bank account.

Every penny counts when you're saving from your job and paying back student loans and there's no point in paying more than you need to. When you sign up for a student loan or refinance your currently existing student debt, be sure you contact your lender during the process to ask about an ACH (automated clearing house) discount, since most lenders offer this benefit.

Setting up an autopay feature can also prevent you from accidentally missing a payment. Before you set up the autopay feature, make sure you have enough in your account each month to avoid having your balance go negative, which would cause you to be charged overdraft fees.

2. Ask for a loyalty discount

Making automated payments seems like an easy way to lower your student loan interest rate, but did you know another quick and easy way to reduce your rate even more is to ask if your lender offers a loyalty discount? Many lenders may offer loyalty discounts to currently existing customers, on top of offering an autopay or ACH discount.

Many banks will not only offer you loyalty discounts, but many, like Citizens, will offer solid 0.25% rate discounts if a co-signer is a currently existing customer for certain bank products.

So far, if you're able to set up autopay and receive a loyalty discount, you've shaved off 0.5% from your interest rate. Over time, these small rate benefits can add up. For example, using our refinancing calculator, if you have a loan balance of $40,000 and pay an average interest rate of 7% over the course of 10 years, if you receive the autopay benefit and loyalty discount for a total of 0.5% off your interest, your new interest rate would be 6.5% on that 10 year term loan. This would save you a whopping $1,200 in interest.

3. Pay your student loans on time

On top of offering an ACH and loyalty discount, some lenders may also offer another interest rate reduction of around 0.25%, if you also make several yearly on-time payments, typically for three or four years. Once you've set up autopay, this should keep you from missing payments accidentally, which will enable you to automatically qualify for an additionally 0.25% off your interest rate after three to four years, depending on the borrower's terms.

4. Refinance your student loans

Refinancing your student loans will help you save the most in interest over the term of your loan. If you think your interest rate on your current federal or private student loan is too high, refinancing could be a great way to lower your student loan interest rate.

The way refinancing works is fairly simple. When you refinance your student loans, a private lender issues you a new loan for some or even all of your current student loans. This new loan has a different (usually much lower) interest rate and could even have an (ideally) lower maturity as well. This would allow you to pay lower monthly payments towards your balance.

While refinancing your student loan sounds simple and convenient, it's important to go through our checklist to make sure refinancing your student loans is something you would want to consider, especially if you have federal student loans.

If you refinance when you have federal loans, you could miss out on great repayment benefits that the federal government offers. But if you qualify to refinance with a private lender, you may be in a good enough financial spot and may not necessarily need federal income-driven repayment and distress benefits.

What's great is once you are able to refinance your student loans, you can still qualify for an autopay benefit, a loyalty discount and a consecutive repayment discount. These combined discounts can really help reduce your overall interest paid. For example, if you have a loan balance of $50,000 with an interest rate of 8% and a maturity of 15 years, refinancing at a rate of 6% for a term of 10 years and receiving an additional 0.75% off your interest rate can help you save $21,720 in interest over the term of your loan.

5. Pay off your loan faster

If you're on a mission to reduce your DTI over the next several months, especially through getting a side gig or by taking on a better job, you could also pay off your student loans faster which would help you save on interest throughout the life of the loan.

Lenders should not charge you prepayment fees if you pay more than the minimum monthly payment, so a good idea could be to ask your lender or loan servicer to apply the extra payments or lump-sum payment to your current student loan balance instead of your next payment, which you would be paying next month anyways.

What next?

There's multiple ways to save money by lowering your interest rate. If you haven't signed up for an autopay benefit or qualify for a loyalty discount and haven't received one yet, now's the time to reach out to your lender or loan servicer. Shop around to refinance your student loans and if it makes sense, refinancing your private or even federal student loans could help you save a ton in interest.



Here are some of the best refinance lenders


Lender
Variable APR
Earnest
2.14-6.79%1
CommonBond
2.41-7.95%2
LendKey
2.24-6.67%3

1Important 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 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% 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 September 5, 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 08/15/2019. 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 hello@earnest.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.

2Important 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 2.37% effective July 10, 2019.

3Important 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 education institution.


The team members at PeppyWallet pride themselves in finding and suggesting services and products that they believe are of high quality and have the potential to positively change a student loan borrower's financial circumstances. We may earn an advertising fee or sales commission when we recommend various services and products to you, which is how we maintain our site and education platform. Be sure to read the fine print to help you understand your product's or service's terms and conditions. PeppyWallet is not an investment advisor or lender, and is not involved in the investment or loan approval process, and does not make investment related or credit decisions. Any terms and rates which are listed on our website are our latest estimates but are subject to change at any time, and we cannot guarantee that they are up-to-date.