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    Home»Loans»How To Lower Your Student Loan Interest Rate
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    How To Lower Your Student Loan Interest Rate

    peachcodeBy peachcodeDecember 12, 2021Updated:September 12, 2022No Comments6 Mins Read
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    Student loan interest can be deceiving. When you’re talking about incremental differences—like comparing 5.6% and 6% interest rates—it’s easy to assume that a few tenths of a percent doesn’t really matter.
    But over the life of a loan, those incremental differences can add up to hundreds and even thousands of dollars. That’s why getting the lowest rate possible is a great way to save money on student loan repayment.
    The best strategies will depend on the type of loans you have. We’ll walk you through the options available for borrowers interested in lowering student loan interest rates.
    Before you figure out how to lower your interest rate, establish what kind of student loans you have. Most borrowers have federal student loans, but some have a mix of federal and private loans or only private loans.
    The first step is to look at your official credit report at AnnualCreditReport.com, where you can see your credit report from all three credit bureaus. Free weekly credit reports are available through April 2022. When you check your credit report, it will show a list of all your current and past credit cards, loans and other credit products. If you have student loans, they will be listed here.
    Next, visit the Federal Student Aid (FSA) website to see if you have any federal student loans. To log in, you’ll need your FSA ID. Once you log in, you’ll see any federal loans in your name.
    Match up the loans on your credit report to the loans on your FSA account. If there are any left over, those are from private lenders. You’ll have to visit their individual websites and create an account to view details such as your interest rate and payment due date.
    It’s important to figure out what kind of loans you have because your options for reducing interest, and the pros and cons of doing so, differ depending on whether your loans are private or federal. Federal loans have more perks and benefits like income-driven repayment, longer deferment periods and more forbearance options.
    If your parents took out federal Parent PLUS Loans, they’ll have to log onto their own account. Parents who borrowed private student loans can use the above-mentioned steps to find their loan details.
    Refinancing is the process of exchanging your current loan for a new loan with a different term, interest rate or both. Most often, you refinance with a new lender, not the one you originally borrowed from.
    Borrowers usually refinance their student loans to get a lower interest rate so they can pay less interest over the life of the loan. This may result in a lower monthly payment, unless the borrower chooses a shorter loan term to speed up the repayment process. Shorter repayment terms often mean a higher monthly payment in exchange for less interest paid over the life of the loan.
    Some borrowers refinance to a longer repayment term, which will result in a lower monthly payment. This allows for more flexibility in their budget. Be aware that refinancing to a longer term may cause you to pay more in total interest.
    Both children and parents can refinance their student loans. A parent may be able to refinance their loans to the child’s name, if the child is able to qualify. Parents can also keep the loan in their name and refinance to a lower rate or lower monthly payment.
    If a parent has co-signed a student loan for their child, the child can refinance to remove the parent from the loan.
    Generally, qualifying for a student loan refinance requires a credit score at least above 600. To check your credit score, visit a website that offers them for free, or check if you receive a free monthly score from any financial institutions you do business with. Some banks and lenders provide free credit scores to customers.
    Some lenders also have income thresholds. For example, Citizens Bank requires a total income of $24,000 in order to refinance, while CommonBond requires a total income of $65,000.
    If you don’t qualify for a loan refinance by yourself, you can ask someone to co-sign the loan with you, like a parent. They’ll need to meet the lender’s credit score and income requirements in order to co-sign. The loan will stay on their credit report until you pay it off, which could impact their ability to qualify for a loan of their own.
    One of the main reasons to understand which type of loans you hold is to understand what you could lose by refinancing them. When you refinance federal student loans, you give up all associated consumer protections, and there’s no way to transfer your loans back to the government.
    For example, if President Joe Biden ends up forgiving a certain amount in individual student loan debt, that will only apply to federal student loans. If you refinance your federal loans, you won’t be eligible for loan cancelation.
    Private lenders typically don’t offer other types of loan forgiveness or income-driven repayment options either. Because of these tradeoffs, it may be worth skipping refinancing your federal loans and keeping them federal, even if refinancing them would lead to a much lower interest rate.
    All federal loan servicers and most private lenders provide an interest rate discount if you sign up for automatic payments. The discount is usually 0.25%, and the payments must be automatically deducted from your bank account.
    Here’s how it plays out. Let’s say you have a $50,000 loan with a 10-year term and a 6% interest rate. If you sign up for automatic payments, the interest rate will drop to 5.75% and you could save $750 in total interest.
    Automatic payments also help you avoid paying a bill late, which will save you from late fees and damage to your credit score.
    Takes Up To 3 Minutes
    Zina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
    Brianna McGurran is the Loans Analyst for Forbes Advisor. Most recently, she was a staff writer and spokesperson at NerdWallet, where she wrote “Ask Brianna,” a financial advice column syndicated by the Associated Press. As spokesperson, she also contributed her expertise to outlets including The New York Times, ABC World News Tonight and the Today Show.

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