Strategies for Lowering Your Student Loan Interest Rate

January 08, 2018 · 7 minute read

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Strategies for Lowering Your Student Loan Interest Rate

When you’re in college, you don’t necessarily have a lot of control over the interest rates on your student loans.
With federal loans, the U.S. Department of Education sets the rate each year for all borrowers. And if you get private student loans, limited credit history can make it hard to score favorable terms.

But once you graduate, there are a few things you can do to try and save money. Here are a few tips that may be able to help you lower your interest rate on student loans.

Choosing the Right Repayment Plan

If you don’t choose a specific repayment path, you’re typically opted into the standard repayment plan. For a standard repayment plan, your payments are generally based off a 10-year timeline. But this one-size-fits-all repayment plan might not be best option for you.

One money-saving repayment option for federal student loans is the Public Service Loan Forgiveness program.

If you work in a qualifying public service job—for the government or for some non-profit organizations—you might be eligible to have your student loans forgiven after 10 years of service. You can confirm whether your work qualifies here. You’ll want to submit an Employment Certification as soon as possible to be sure that you’re on track to qualify.

The federal government also offers four income-driven repayment (IDR) plans, wherein the monthly payments are based off your income and family size. While choosing one of these plans may help to lower your monthly payments, it will likely not alleviate how much interest you pay over time—you might even pay significantly more, in fact.

After 20 or 25 years, depending on the plan, the remainder of your balance will be forgiven if your federal student loans aren’t fully repaid. However, the balance you’re forgiven is may be considered taxable income by the IRS, so even though your student loans will go away, you might have to prepare for a big tax bill that year.

Consolidating Your Student Loans

Have multiple student loans floating around that you’d love to smush together into one? You could consider loan consolidation, where you’ll combine all your student loans into one easy monthly payment with a single interest rate. Here’s the rub, though: Consolidation alone does not necessarily get you a better interest rate on your student loans, it just offers you one payment instead of multiple.

When consolidating federal student loans, you can use a Direct Consolidation Loan , which is specifically to consolidate your federal student loans. They simply take a weighted average of all your student loan interest rates and create a new loan.

The weighted average of your loan rates might be a touch higher than the interest rates you were paying previously. Often folks utilize consolidation to stretch out the life of their student loan, which lowers your payments now, but may increases the amount you owe over time.

Even though consolidation itself is not a direct way to get a better rate on your student loans, it could be helpful if you’re having trouble keeping track of your monthly payments. Consolidation may also be useful if you want to merge non-direct federal loans (like Perkins loans) with direct loans, in order to qualify for income-driven repayment and/or loan forgiveness programs.

Also, the term “consolidating” is often used interchangeably with “refinancing,” but they technically mean different things. When you refinance multiple student loans, you also happen to be consolidating, but it is done with the goal of achieving a more favorable interest rate on your student loans.

Setting Up Automatic Payments

Many student loan servicers—both federal and private—offer an interest rate discount if you opt to set up autopay on your account. Depending on the servicer, you could lower your student loan interest rate. SoFi, for example, offers a 0.25% autopay discount.

The reason servicers offer this discount is that by setting up automatic payments, you’re less likely to miss payments and default on the loan.

In addition to getting a lower student loan interest rate, you’ll also (hopefully!) have peace of mind knowing that you won’t accidentally miss a payment. Check with your loan servicer to see whether they offer an autopay discount.

Getting a Loyalty Discount

In addition to an autopay discount, some private student loan companies also offer a loyalty discount when you have another eligible account with them. If you’re already a member with SoFi, for instance, you receive an interest rate discount of 0.125% on all new loans.

Other lenders may require that you have an eligible checking or savings account with them to qualify for the bonus, and you may even get a bigger discount if you make your monthly payments from that account.

To get an idea of how a change in interest rate would impact your loan, take advantage of a student loan refinance calculator to see what your new payments could be.

Refinancing Your Student Loans

Scoring discounts with your current servicer can help you get a lower student loan interest rate, but there is another option you can consider trying. Depending on your financial profile, you could qualify for a lower student loan interest rate than what you’re currently paying with student loan refinancing.

By refinancing, you could potentially lower your interest rate by bundling your student loans (federal and/or private) into one new loan. And if you shorten your loan term, you may be able to pay off your student loans much faster and pay less in interest over the life of your loan.

Student Loan RefinancingStudent Loan Refinancing

Student loan refinancing is ideal for borrowers with high-interest student loans, who have good credit scores, and know they won’t use any of the federal loan benefits, like student loan forgiveness. (All federal loan benefits, including income-based repayment, will be lost if you refinance.)

To see if you qualify to save some money on your student loan(s), start by getting quotes and asking questions from a few banks. Online lenders may offer competitive rates and more flexibility than traditional banks, but it’s still worth it to compare competitive rates and more flexibility than traditional banks, but it’s still worth it to compare student loan refinancing, but it’s often based on credit score, credit history, and income to name a few. It usually takes a few minutes to get a quote.

Once you’ve decided on a bank or online lender, the process can move quickly. You’ll have to fill out paperwork and the bank will do some final checks on their end, but before long you could be all set up with your refinanced student loan at a better rate. All that’s left after that would be to enjoy having that extra cash (or speedier timeline)!

Here are a few things that may help you improve your chances of getting a lower student loan interest rate with refinancing:

•   A high credit score: Lenders typically have a minimum credit score requirement, so the higher your score, the better your chances of getting a low rate usually are.
•   A low debt-to-income ratio: Your income is also an important factor that lenders consider, especially as it relates to your overall debt burden. If a smaller portion of your monthly income goes toward debt payments, it shows you may have more income to dedicate to your new loan’s payments.
•   A co-signer: Even if your credit and income situation is in good shape, having a co-signer with great credit and a solid income might help your case.
•   A variable rate: Some student loan refinance lenders offer both variable and fixed interest rates. Variable interest rates may start out lower but increase over time in accordance with market fluctuations, unlike fixed rates, which stay the same over the life of the loan. If you’re planning on paying off your student loans quickly, a variable rate might save you money.
•   The right lender: Each lender has its own criteria for setting interest rates, so it’s important to shop around to find the best lender for your needs. Some lenders, including SoFi, even allow you to view rate offers before you officially apply.

Lowering Your Student Loan Interest Rate

There aren’t a lot of ways to get a lower student loan interest rate, but the options that are available don’t require too much up front legwork.

With the first two options, it may be just a matter of calling your servicer to find out what discounts are available.

If you’re considering refinancing your student loans with SoFi, you can check your new rate in just a few minutes. This process will let you know if you might qualify for a lower student loan interest rate. If you do, it won’t take much time beyond that to officially apply.

Depending on which refinancing options you choose, you could potentially save money on interest over the life of the loan.

Take control of your student loan debt by refinancing with SoFi. See if you qualify to secure a lower student loan interest rate in just two minutes.


SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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