3 ways to get a lower interest rate on your student loan
Getting lower interest rates on student loans could mean paying less total interest over the life of the loan, potentially adding up to thousands of dollars in savings. Refinancing could also help you release a co-signer from your loans if you enlisted help to borrow. If you're interested in taking advantage of low interest rates on student loans, here are three ways to do it.
1. Refinance student loans
Student loan refinancing involves taking out new student loans to repay your existing loans. Going forward, you'd repay your new refinance loan at the rate and terms set by your lender.
Refinancing student loans could benefit you if you're able to secure a lower rate and you still have several years left to pay on your loans. It's also an opportunity to make a switch from loans with fixed interest rates to loans with variable interest rates, or vice versa.
Keep in mind that student loan refinancing means lenders will review your credit history and credit score. Qualifying for the best interest rates may require you to apply for loans with a co-signer if you have limited credit history or a low credit score.
Before applying for refinance loans, it's helpful to use a student loan refinancing calculator to see how much money you could save and what your new monthly payments might be. You can also use an online like tool like Credible to compare student loan refinancing rates from multiple lenders without affecting your credit score.
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2. Get a new student loan
Private student loan interest rates are low, owing largely to the Federal Reserve's decision to cut interest rates to zero in the first quarter of 2020. That could make it a great time to take out a new private student loan if you need money for school.
Again, your ability to qualify for the lowest interest rates hinges largely on your credit score and credit history. A co-signer with good credit could help bolster your application, making it easier to get approved for new loans at good interest rates. Credible can help with comparing rates from different lenders, again with no credit score impacts.
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A student loan calculator can help with weighing the costs of different loans before you commit to a lender. It's important to consider how new student loan payments might fit into your budget now if you plan to make payments while you're in school and what you'll be able to afford to pay after you graduate.
3. Get a student loan with a variable interest rate
When comparing lenders, consider whether it makes more sense to look for loans with fixed-interest rates or variable interest rates. Since rates for student loans are currently so low, a fixed-rate option could be attractive if you're able to lock in a low rate for the long-term.
On the other hand, you may prefer a loan with variable interest rates. Variable-rate loans have interest rates that are tied to a benchmark rate. When the benchmark rate changes, the interest rate on your loans can follow suit, moving up or down over time.
If you want lower interest rates on student loans, variable rate loans could offer that if rates continue to drop further. The lower rates go, the more money you can save. Credible can help you compare student loan variable interest rates and fixed-interest rates side by side to see which one may be the better option.
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Read the fine print on student loans carefully
Knowing how to manage student loan debt is important for maintaining good financial health. Whether you're taking the student loan refinancing path or getting a brand-new loan, get to know the details on what you're borrowing first.
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Make sure you understand what repayment options there are so you can choose a plan that best fits your budget. Take note of any special discounts the lender offers, such as an interest rate reduction for making automatic payments. And finally, be aware of any deferment or forbearance options the lender offers in case you run into trouble making payments on your loans down the road.