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College Students and Recent Grads

3 Strategies to Get a Lower Student Loan Interest Rate

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Interest charges can be a huge cost for student loan borrowers. Of course, they’re especially painful for borrowers who have high interest rates or large student loan balances. But even an average borrower might want to know how to lower student loan interest so that their debt costs them less.

A lower student loan interest rate is key to your finances. A high interest rate can cost you thousands of additional dollars over the life of your loan, while a lower rate can mean not just smaller monthly payments, but also a quicker route out of debt.

How student loan interest works

When you borrow with student loans, as with most other credit, what you repay will be more than the amount lent to you — the principal — since interest accrues on whatever you haven’t yet repaid. How much student loan interest you pay is based on how much you still owe — your loan balance — as well as the actual interest rate itself.

How your student loan rate is set

For federal student loans, your rate will be set by Congress for the academic year in which you borrowed them. And not all federal student loan interest rates are created equal. For example, PLUS loans carry rates 2.55 percentage points higher than those for undergraduate student loans.

Private student loan lenders, meanwhile, set interest rates differently. Each has its own formula, but most will tie offered rates to your credit history, giving lower rates to borrowers who have higher credit scores.

How student loan interest rates affect your payment

Most student loan rates are annual, which means they reflect how much interest you’d be charged on the loan within a year. So on a $10,000 student loan with a 5% rate, you’d pay $500 in interest per year if you didn’t repay any of the loan during that time.

But your loan doesn’t accrue interest just once a year. Student loan interest is typically assessed and charged daily. So your annual interest rate is divided by 365 days, and you’re charged that amount of your outstanding balance each day.

As you make payments on student loans, the principal will go down a bit at a time, slowly lowering how much interest you’re being charged each month.

Ultimately, one of the smartest ways to pay less interest is to figure out how to get a lower interest rate on student loans. With a lower rate, you will save money and get out of debt faster.

How to get a lower student loan interest rate

The student loan rates you’re paying now were set when you were first offered the loan, and they are outlined in your loan agreement or promissory note.

But you’re not stuck with what’s in your agreement if you know how to get a lower interest rate on student loans. Here are a few ways you might be able to slash your loan rates.

1. Choose your student lender wisely

As mentioned above, the rate you pay will depend on the type of student loan you choose and from whom you borrow. If you’re taking out federal student loans, for example, it’s wise to borrow with subsidized loans first (no interest while you’re in school), and then unsubsidized loans (interest accrues while in school), before turning to PLUS loans with higher rates.

It’s more important to get picky when looking for the best private student loans. Each lender has its own formula for setting rates, and advertised rates don’t always reflect what a lender will offer you. It’s important to comparison shop to find the best private student loan rates you can.

You could save even more by seeking a student loan from a bank or lender with whom you already have a relationship. Citizens Bank offers a 0.25% percentage point loyalty discount for borrowers with an existing account, for instance.

2. Sign up for automatic payments

On top of loyalty discounts, some lenders will provide you with a rate discount for making on-time payments. One of the most common ways to reduce a student loan interest rate is to sign up for automatic payments.

When you enroll in autopay, you let your lender automatically debit a connected account to collect your student loan payment each month. In return, you get a rate discount — typically 0.25% off your rate.

3. Refinance student loans with a private lender

Another option to lower your student loan rate involves refinancing with a private lender. Refinancing student loans gives you the option to replace your old loans (and their high interest rates) with a new loan. This is your opportunity to choose a new lender with lower student loan interest rates, and even adjust your loan term or monthly payment.

The lowest student loan refinance rates start around 2.50%. To get these rates you’ll need an above-average income and a good-to-excellent credit score, or else you’ll need a cosigner who meets those requirements. Student loan refinance rates can also vary by the terms you choose, such as loan length and whether you take a variable or fixed rate.

Still, you don’t need perfect credit to benefit from student loan refinancing. If you have interest rates in the range of 6.00% to 7.00% or higher — maybe from a private student loan, or even a grad PLUS or parent PLUS loan — you could be a good candidate for refinancing.

In this case, you might want to start exploring your options to refinance student loans by comparing lender requirements and collecting some rate quotes. Try out our student loan refinancing calculator to see what your savings could look like with a lower interest rate.

Other ways to lower student loan interest costs

After considering the options above, you might be wondering how else you can lower your interest costs.

While figuring out how to get a lower interest rate on student loans can be a good place to start, it’s not the only way to pay less. Here are some other strategies you can use to lower student loan interest charges.

Make extra student loan payments

Besides lowering your interest rate, one of the surest ways to pay less student loan interest is to lower your balance. After all, the interest you’re charged is based on the amount of student debt you owe. If you pay off student loans faster, your balance will also decrease more quickly — resulting in big interest savings.

Lowering your student loan balances is as easy as sending in more than your student loan payment each month. You can round up a payment to the nearest hundred. Or you might set up automatic extra payments deducted each time your paycheck hits your bank account.

Setting up an extra $25 payment from every biweekly paycheck, for example, would be $650 per year. Doing so for a $15,000 loan with a 5.00% rate just entering a 10-year repayment would shave off three years from repayment and save more than $1,300 in interest.

It might not seem like much at first, but after a few months you’ll start seeing results. Student Loan Hero has a student loan prepayment calculator to help you preview your savings and decide how much extra you want to pay on your student debt each month. (Note: Student Loan Hero and MagnifyMoney are both owned by LendingTree)

If you go this route, however, make sure that your extra payment is applied to the principal, rather than as an early payment. Contact your lender to be certain.

Target high-interest loans first

Sending extra student loan payments is a great start, but you can add a level of strategy to make it even more effective. You can do this through the debt avalanche method. Here’s how it works:

  • List all your student loans, including balances, interest rates and monthly payment amounts.
  • Order your student loans from the highest to lowest interest rate.
  • Apply any extra payments to one loan at a time, starting with the highest-interest loan.
  • As you pay off one loan, roll over the amount you were paying on that debt — both the monthly and extra payments — and apply them to the student loan with the next highest rate.
  • Repeat this until all your student debt is gone.

Following the debt avalanche method helps you quickly lower the balances that are costing you the most. By paying off high-interest debt first, you’ll pay less in interest and get out of debt faster.

Take advantage of interest subsidies

One of the smartest ways to save on interest is to get someone else to pay for it. That’s exactly what happens if you’re lucky enough to get a federal student loan with an interest subsidy.

For the direct subsidized loan, for example, any interest that is assessed and charge while the student loan is in deferment is paid by the U.S. Department of Education. The most common situation where this applies is an in-school deferment for students who are still in college. But this interest subsidy will also apply anytime a borrower defers a subsidized student loan, even if they’ve already started repaying this debt.

So if you have subsidized student loans and can qualify for student loan deferment, it might be worth pausing payments on those. It will save you interest for the months they are deferred, and this can free up funds you could use to make extra payments on your more expensive or unsubsidized loans.

Avoid extending repayment

While deferring subsidized loans can be smart, you should avoid pausing or extending repayment for unsubsidized or private student loans.

Getting a deferment, forbearance or income-driven repayment plan is better than worse alternatives such as missing student loan payments or even defaulting. But you should know for all these options that while they will provide temporary relief, they might also increase your student loan costs over the life of the loan.

That’s because student loan interest still accrues on private or unsubsidized federal loans, even if you pause payments through deferment or forbearance, or lower payments through an income-driven repayment plan. In fact, because you’re paying less toward these loans, your balance will go down more slowly (if at all). And a higher balance means higher student loan interest, too, unless you can get the remaining amount forgiven. So it’s worth sticking to making monthly payments under the standard repayment plan if at all possible.

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Credit Union Student Loan Refinance: These Are Your Options

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Refinancing student loans can help you crush your college debt in many ways, from lowering monthly payments to qualfying for a better interest rate. But before you can enjoy the benefits of refinancing student debt, you’ll first need to find the lender that can offer you the best deal to make it happen.

Maybe you’ve already started checking out student loan refinance providers, but are credit unions on your list? Along with traditional banks and online lenders, many credit unions are offering student loan consolidation and refinancing, sometimes with very competitive terms.

Unlike other banks and lenders, credit unions are structured in a way that can provide unique value to members. So if you want to be sure you’re getting the best deal on refinancing student loans, it’s wise to consider credit unions among the lenders you compare. Here’s what you need to know.

Should you refinance student loans with a credit union?

Credit unions are cooperatives — not-for-profit financial institutions — which means that any money they bring in gets re-invested in order to offer the best products and lowest costs to their members.

This is often reflected in their student loan refinance options, which often have low rates and are open to borrowers with a wide range of credit and financial qualifications.

Here’s an overview of some of the pros and cons to choosing a credit union to refinance student loans. All rates and terms quoted below are accurate as of October 9, 2018.

Pros of refinancing with a credit union

Choosing to borrow from a credit union can come with some major upsides. Here are some of the benefits you might come across by including credit unions in your search for a student loan refinancing lender.

Because credit unions aren’t structured like traditional banks, they often have the flexibility to offer financing to a wider range of borrowers. This can be helpful for applicants with less-than-perfect credit, who might be more likely to get approved or be offered a better student loan refinance rate if they apply with a credit union.

Some credit unions also provide unique options on their student loan consolidation products that would be hard to find elsewhere. PenFed Credit Union, for example, allows borrowers to combine their student loans with those of their spouse through its spouse loan refinancing option.

As mentioned, credit unions’ not-for-profit designation means that they’re not as focused on making a profit off of every single product. This allows them to offer student loan refinancing with lower rates and fees.

LendKey, for example, is a network that connects student loan borrowers with credit unions and community banks that offer student loan consolidation. It advertises student loan refinance rates through its network lenders as low as 1.90% APR on variable-rate loans, or 3.39% APR for fixed-rate loans. These community lenders also charge no origination fees to refinance student loans.

Credit unions generally offer a member-centered experience, often going above and beyond to provide you with the help you need when you need it. Some of the most convenient credit unions provide unique features such as 24-hour phone assistance, extended hours in branches, and mobile apps to stay on top of your student loans and other accounts.

Cons of credit union student loan consolidation

Refinancing student loans with a credit union won’t be right for every borrower, however. Here are some potential downsides to watch out for when comparing credit unions to other student lenders.

Credit union products, like student loan refinancing, are typically only extended to credit union members. While some credit unions are open to anyone, each of these financial institutions will have some requirements for who can and can’t join.

You won’t be eligible to join every credit union, so make sure that membership is open to you at whichever credit unions you’re considering as a potential refinancing lender.

While credit unions have competitive student loan consolidation rates, that doesn’t mean they will always beat other lenders.

It’s possible that another student loan lender, maybe a large bank or online financial institution, can beat the credit union’s student loan refinance rate. That makes it all the more important to hunt around and compare refinancing rate quotes so you know how credit unions stack up.

For some borrowers, student loan refinancing won’t make sense no matter who their lender is. Refinancing comes with some drawbacks that every borrower should weigh before moving forward with this step.

Consolidating student loans with a private lender will mean giving up federal student loan benefits, for example. This could include losing access to income-driven repayment plans and federal student loan forgiveness, as well as options like deferment or forbearance that pause payments and can be tough to get from private lenders.

On top of this, many federal student loan rates are already fairly low, so they could be hard for a student loan refinance lender to beat. And since getting a lower interest rate is one of the most common reasons to refinance student loans, you’ll need to do the math before taking this step. You can use our student loan refinance calculator to get a sense of what you might (or might not) save.

Finding a credit union to refinance student loans

If you’re starting your search for the best student loan refinance lender for your needs, you might not know what your options are when it comes to credit unions. After all, you not only have to find credit unions you’re eligible to join, but also to judge whether their products are the best deal for your specific situation.

Here are a few good options to consider as you start your search:

LendKey

As mentioned above, LendKey isn’t a credit union itself, but rather a network of over 300 credit unions and community banks. It can quickly match you with credit unions willing to refinance your student loans. LendKey does this through its rate quote tool, which uses a soft credit check to get the financial information needed to find you potential lenders — without affecting your credit score.

You will need to complete a brief form providing some general information, including your name and contact information, income, citizenship status, the amount of student loans you wish to refinance, the degree you completed and the college you attended.

Once that’s provided, you can submit the form, and LendKey’s rate tool will automatically match you to credit unions. It will often bring up several student loan refinance offers at once, allowing you to compare multiple options at once.

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Credit Union Student Choice Refinancing

Another tool for quickly connecting with credit union student loan refinancing is Credit Union Student Choice. Founded by several credit unions as a solution for student loan borrowers, Student Choice works with credit unions throughout the U.S. to provide the Student Choice Refinance Loan.

The Student Choice credit union locator tool uses your zip code, the college you attended, or your state of residence to return credit unions that match your criteria. From there, you can view the specific student loan refinance rates and terms available.

Once you’ve selected a credit union you’re interested in, you can apply right on the site through Student Choice. You don’t always need to be a member of the credit union just to apply, but it can make the process a little easier, and you’ll typically need to join the credit union before signing the final loan agreement and getting your refinanced student loan disbursed.

Alliant Credit Union

Alliant Credit Union is no longer accepting applications for Student Loans. See alliantcreditunion.org for more information.

The first two options power student loan refinance offerings at hundreds of credit unions. But they aren’t your only option.

Alliant Credit Union, for example, has a flexible membership eligibility policy, which includes one option almost anyone can satisfy: supporting its partner charity, Foster Care to Success. With a $5 donation to this organization, you can become eligible to join Alliant Credit Union.

PenFed Credit Union

As mentioned, PenFed Credit Union offers some unique student loan refinancing options in partnership with lender Purefy. It offers student loan refinancing with variable rates starting at 1.58% APR, or fixed rates as low as 3.23% APR.

PenFed Credit Union’s student loan refinancing is most notable for its flexibility, including such options as refinancing parent student loans or, as mentioned, consolidating student debt with a spouse.

As with other credit unions, you’ll need to join PenFed in order to refinance your student loans there. U.S. federal employees, military members, and their family are all eligible to join PenFed Credit Union. Beyond that, nearly anyone can join the National Military Family Association or Voices for America’s Troops to become eligible for PenFed Credit Union Membership.

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Find your own credit union

The credit unions and networks we highlighted here are a great place to start your search for a student loan refinance lender. But you can also search on your own for a credit union to refinance student loans.

You might already be a member of a credit union — if so, check to see if it offers refinancing. You can also search in your community, or use this credit union locator tool from DepositAccounts, another LendingTree-owned company, to find other institutions that you are eligible to join.

Including credit unions among the lenders you consider for student loan refinancing is a smart move. Even so, you should be critical and choosy when evaluating student loan refinance offers, including those from credit unions. With some investigating, you can find enough options to be sure that the final student loan refinancing offer you select will be the best.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Disclaimer

Student Loan
earnest

Refinance with Earnest

Refinancing rates from 3.50% APR. Checking your rates won’t affect your credit score.