Student loans are a massive financial strain on every college graduate in the U.S today. You graduate with a large amount of student loan debt, then spend years of your career trying to settle it. Soon it becomes a way of life.
Settling your loan balance can be difficult, and the high-interest rates don’t help either. But there’s good news. You can follow a few simple steps that could potentially help lower your student loan interest rates-your monthly payments will reduce, and you will become debt-free faster.
Read on to find out how to lower your student loan interest rates.
For Loans Already Acquired
Refinance Your Student Loans
Refinancing student loans is the most effective way of reducing your loan interest rates. It means trading your unpaid loan for a new private loan with lower interest rates. This type of financing allows the debtor to replace their existing debt with one that has more friendly terms. The borrower takes out a new loan uses it to pay off the current deficit, then the new terms from the updated loan agreement replace the old loan. This gives debtors a chance to get a lower monthly payment, different term length, or a more convenient payment structure.
To qualify for refinancing, you need good credit. You will need a credit score that is in the high 600s or a co-signer with a good credit score. Plus with high credit scores, lenders view you as a reliable borrower who is more likely to repay the loan on time. The higher your credit score, the lower the interest rate you qualify for.
However, there’s a catch. If you want to go after Public Service Loan Forgiveness or pay using an income-driven payment plan, don’t refinance your federal student loan. You will lose access to those programs.
Sign up For Autopay (Direct Debit)
The most popular way of lowering your student loan interest rate is by refinancing, but you can also save more by signing up for autopay — even without refinancing.
Federal loans and several private lenders offer an Automated Clearing House (ACH) discount. This is a 0.25% interest rate discount when you choose to have your monthly payments deducted directly from your bank account.
Autopay also gives you a sense of assurance. You will not have to worry about accidentally missing your payments, as long as there is enough money in the account.
If your federal student loan interest rates are higher than the current rate offered, you may choose to restructure with a federal direct consolidation loan.
A debt consolidation loan is a type of financing that is used to pay off several high-interest debts with one low-interest loan.
You will not need extra fees to do this, but you can’t include private loans in the plan.
Make Your Payments On Time
Signing up for autopay can help you tackle this in one sitting. Some lenders offer favorable discounts to debtors who pay regularly and on time. There is a catch; the discount rate and eligibility for the discount depend on your lender. You will have to meet your lender’s payback history conditions.
Also, check with your lender to find out whether this option is available.
If You Don’t Have An Existing Loan
Whenever you are looking for a student loan, the best thing you can do for yourself is to shop around. Obtain quotes from at least three top student loan lenders then note the loan interests according to the various repayment terms. These rates often vary with the payment terms.
Take advantage of Loyalty Discounts
Some lenders offer loyalty discounts to their repeat borrowers with good payback histories. Before looking elsewhere, Check in with your current bank or lender to find out if you qualify for a loyalty discount.
Improve Your credit score
Many factors determine the loan interest rate you will get, but your credit score takes the largest piece of the pie.
If you improve your credit score before applying for a student loan, you will get a lower interest rate. So pay your bills consistently and on time, and avoid “revolving debts” like credit card debts.
Apply With A Co-signer
A co-signer is an individual who agrees to take full responsibility for the loan if you, the primary borrower, default. Without a cosigner, the eligibility, terms, and interest rates are determined based on your financial situation – your credit score, debt, and income.
On the other hand, when applying with a co-signer, their financial history is included when determining the terms. Find a co-signer with good credit and stable income to help you get a better interest rate. Inform them of the risk to their credit score if you miss your or default on your payments
Select your co-signer carefully, and make them aware of the risk to their credit score if you don’t meet your repayment obligations.
Choose A Shorter Repayment Term
Lenders often offer lower interest rates to borrowers who choose a shorter repayment period. This also reduces your overall borrowing cost by reducing the amount of your money that goes to interest.
However, even with this benefit, short repayment terms also mean higher monthly payments. So make sure you can afford the payments before choosing this term. You don’t want to end up with a damaged credit score.
If you already have an existing loan, remember that reducing your student loan interest rates is not an easy task, but it still possible. Choose the right method that suits your situation. Once you achieve your goal, try keeping up with the regular monthly payments to keep your credit score high.
If you haven’t applied for a student loan yet, remember, your student loans appear on your credit report as soon as they’re granted. So keep them in good standing by managing them well, and this will raise your credit score and put you on the good side of your lender.