4 Ways To Reduce Student Loan Interest Rates
There’s no way around it: paying off student loans is a hassle none of us want to deal with.
Fortunately, there are ways to make this process a little less painful. This includes ways that don’t depend on the federal government, which are not much help if your loans are through a private lender. This also doesn’t mean choosing alternative payment plans that can end up increasing the overall cost of your loan.
That being said, there are ways to alleviate monthly costs and lower the total cost of your loan. This article will provide you with basic tips on how you can lower the interest on your student loans. Moreover, all of these tips can be applied to private loans and some towards federal student loans as well.
Sign up for auto pay
Several lenders, including private financial institutions and the federal government, offer a quarter-point interest rate when you sign up for automatic payments deducted from your bank account. There are cases where private lenders such as PNC will decrease your rate by half a percentage point (0.50) for using automatic payments.
Using automatic payments not only ensures that you won’t miss out on any payments but can also serve to maintain a good credit score. Contact your lender to see if you are eligible for an auto pay discount.
Look for loyalty discounts
If you or a family member has an existing bank account or had a previous loan with the company, know that some private lenders will offer some discounts you could be eligible for. An example would be Citizens Bank, which is known to remove 0.25 percentage points off your interest rate if you or your co-signer has an existing account with the bank. Thus, if you are looking for a loan, do not forget to consider any loyalty discounts that may be applicable to you. If you are someone without a previously existing account, you might want to consider opening a student checking account with a lender before taking out a loan from there.
Ask for an on-time payment discount
Not all lenders offer this discount, so it’s likely that you will need to take the initiative here.
That being said, understand that consistently paying on time can build you a good credit score while also allowing you to save money. If you are someone who has been paying on time for a few years, you can try asking providers to trim the interest rate off. You will not be able to take advantage of this tip if you just finished school, but remember that you can begin this journey by signing up for automatic payments.
Refinance your student loans
One of the best ways to lower your student loan interest rates is to refinance, which essentially means taking out a new, lower-interest loan and using it to pay off your original, higher-interest loan. Doing this can drastically reduce the overall cost of your loan and help you pay it off faster.
Understand that interest rates fluctuate over time and remember that after the Federal Reserve reduces interest rates you can refinance for a cheaper student loan. Because the government does not refinance federal student loans, utilizing this tip would mean moving your debt to a loan from a private lender. To qualify for refinancing, the following qualities are necessary to have:
- Good-to-excellent credit: Having a good credit score will improve your chances of getting refinanced when interest rates are reduced. Lenders will typically only approve of applicants that have high credit scores, such as in the high 600s for starters.
- A stable income: refinancing only makes sense if you have a stable cash flow that can help make your new monthly payments.
Refinancing your student loans not an option?
If you are not yet in a position to refinance, know that you still have options. You can always call your lender to see if customer services can help you find a solution. One alternative could be consolidating your loans.
Rolling all your individual loans into one won’t necessarily reduce your interest rate, but it can help free up a little bit of money each month that can then be used to invest, save into another debt, etc.