How to Get Lower Interest Rates on Federal and Private Student Loans


Most borrowers often wonder if they can negotiate a lower interest rate on federal student loans.

It echoed in my mind as I paid off my grad PLUS loans. With an interest rate of 7.9%, I was paying hundreds of dollars every month in interest alone – it was criminal.

Unfortunately, I quickly discovered that my federal borrowing rates were non-negotiable. However, I learned how to lower interest rates on student loans in other ways, including signing up for automatic payments, getting loyalty discounts, and refinancing debt elsewhere.

Here are four questions to answer in order to learn how to reduce the interest rate on your student loans, whether federal or private:

1. Can You Get A Lower Interest Rate On Federal Student Loans?
2. Can You Lower Your Interest Rate on Private Student Loans?
3. Does refinancing reduce the interest rate on student loans?
4. What if you can’t get a lower interest rate on your loans?

Can You Get A Lower Interest Rate On Federal Student Loans?

Interest rates on your Federal student loans are set by Congress every year, which is bad news for borrowers looking to get a deal on their interest rate.

“Interest rates on federal education loans are set by law and cannot be negotiated,” financial aid expert Mark Kantrowitz told Student Loan Hero.

So if you have subsidized or unsubsidized direct student loans, grad PLUS, or parent PLUS loans (which tend to have higher interest rates), you don’t have the option of asking the government for a lower rate. federal.

Federal student loan rates for 2020-2021
Subsidized direct loans and non-subsidized direct loans (undergraduate students) 2.75%
Direct unsubsidized loans (graduate students) 4.30%
Direct PLUS loans (graduate students, parents) 5.30%
Do you have an older federal loan? Consult the interest rate via the website.

You also can’t call your loan manager to negotiate student loan interest rates – this strategy can work with some credit cards, and you should definitely give it a try if you have credit card debt. However, it is ineffective for student loans.

Yet, while there is no way to negotiate student loan interest rates on federal loans, there is a way to get a small reduction on your interest rate.

“With federal and private student loans, borrowers who agree to repay the loan by direct debit, where the monthly payment is automatically transferred from your bank account to the lender, can get an interest rate reduction of 0.25 or 0. , 50. [percentage points]Kantrowitz said.

So, as long as you’re not worried about having an overdraft in your bank account, consider putting your student loan payments on automatic to save on interest.

Can You Lower Your Interest Rate On Private Student Loans?

While federal student loan interest rates are set by federal law, private loan rates are more flexible. The rate you get depends on a number of factors, which may include your credit and income (or that of your co-signer). The stronger your credit, the better your rate could be.

Since lenders set rates, it seems possible that they are open to negotiation. But here too, according to Kantrowitz, there is little room to haggle over the price, and lenders are unlikely to change their mind once they have assigned a rate.

“The terms of private student loans are set by the lender,” Kantrowitz said. “However, I have never seen a lender negotiate the interest rate on a new loan. They use formulas based on the credit score of the borrower and the co-signer, if applicable.

Your best bet, then, is to compare several private loans to find the lowest rate before borrowing, but you should also see if adding a co-signer might help. (And if you’ve ever borrowed, you could try your hand at refinancing a student loan.)

“You could get a lower interest rate by going with a co-signer who has a much better credit rating,” says Kantrowitz.

Note that, just like with federal loans, some private lenders also offer an automatic payment discount on your interest rate, typically 0.25 percentage points. In addition, some banks offer an additional loyalty discount if you have a separate account with them. Citizens Bank, for example, will reduce your interest rate by 0.25 percentage points if you are a loyal customer.

Private lenders could lower interest rates if hardship occurs

In most cases, you probably won’t have much luck asking your private lender for a lower interest rate. But if you’re really having trouble repaying your loan, your lender might be willing to work with you.

“The main situations in which I have seen borrowers successfully negotiate a reduction in the interest rate or loan balance – as opposed to a different repayment plan – involved borrowers in default and in a ‘you’ situation. can’t spill blood from a stone ‘situation,’ Kantrowitz said.

In many of these cases, student loan borrowers have experienced serious financial difficulties that are unlikely to improve anytime soon.

“I have also seen co-signers whose borrower defaulted on the loan negotiating with the lender to remove the default from their credit history and reduce the interest rate in exchange for the co-signer agreeing to make the monthly payments by direct debit, ”Kantrowitz said.

Loan officers and lenders can be notoriously inflexible, so when they break the rules, it’s in quite rare circumstances. If you haven’t yet borrowed, it might be worth looking for lenders who allow you to suspend payments in the event of job loss or return to school.

Does refinancing reduce the interest rate on student loans?

By now, you’ve probably realized that the ability to lower your interest rate on your student loans just by asking is difficult. However, there is an easier way to lower your interest rate – refinance your student loans.

If you have the necessary credit rating and income (or if you can apply to a creditworthy co-signer), refinancing could lower the rates on one or more of your loans.

Refinancing also gives you the ability to restructure your debt with new terms and combine multiple loans into one, simplifying repayment. For example, you may be able to take advantage of CommonBond’s flexible repayment options or Laurel Road’s competitive rates and fees.

Of course, you will have to be careful about refinancing federal loans with a private lender, as that means you would lose access to federal repayment plans and rebate programs.

If you’ve thought about the pros and cons, refinancing a student loan could be a smart way to save money on interest and make it easier to manage your monthly payments. And you won’t have to make an awkward phone call with your loan officer who is trying – and possibly failing – to negotiate your interest rate.

What if you can’t get a lower interest rate on your federal and private loans?

You may have already signed up for AutoPay or got a loyalty program discount and discovered that refinancing is not the right solution for you. Fortunately, there are other ways to lower your interest payments even if you can’t lower your rate.

Rebecca Safier and André Pentis contributed to this report.

Note: This report was originally released on June 29, 2016.

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