A recent study has shown that, on average, a class of 2020 graduates left college with $29,927 in student loans.
That’s a lot to take in on its own. Yet, with an average of 5.8% interest rate and a 10-year repayment schedule, you would pay a total of $39,510 for your student loan.
Lowering an interest rate on your loan can cut your monthly payments or allow you to pay off your student loans faster.
Let’s jump right in to discover how to lower student loan interest rates.
Refinancing your student loans is one of the best ways to lower the interest rate on your student loans.
When you refinance your loan, you exchange your old debts for a new private loan with a reduced interest rate. That way, your new lender will pay off your former lenders, and you will continue to pay back the debt to the new one.
To be eligible for student debt refinancing, you must generally have:
But note that lower interest rates typically come with variable-rate student loans and shorter payback terms. The shortest term most lenders provide is 5 years.
Compare lenders who offer student loan refinancing to get the lowest rate you qualify for.
If you want to seek Public Service Loan Forgiveness or make reduced payments through an income-driven repayment plan, refinancing isn’t a suitable option. It’s because refinancing federal student loans automatically disqualifies you from the abovementioned programs.
Although refinancing is by far the most common strategy to cut your interest rate, you may still save money by enrolling in autopay – even if you don’t refinance.
When you opt in to automatically transfer payments from your checking account, you will receive a 0.25% interest rate reduction. Federal aids and many private student loan lenders support autopay.
Another advantage of using autopay is that it prevents you from missing payments by accident. Simply make sure you have enough money in your bank account each month to prevent overdraft penalties.
ACH (Automated Clearing House) discount is another term for autopay. So check with your servicer to see whether the autopay or ACH discount is available for your student loans.
Along with autopay or ACH discounts, some lenders provide loyalty incentives. To qualify, you must normally have an approved account with the lender at the time you get your loan.
For example:
Although fractions of a percentage point may not seem like much, these savings may pile up. On a $30,000 loan with a 6% interest rate, getting a 0.25% interest rate discount is $450 in savings over ten years.
If you achieved a 0.50% rate discount on the same loan by taking advantage of the ACH discount plus a loyalty discount, you’d save around $900 over 10 years.
Now that you know that there are ways to lower your student loan interest rate, it’s time to take action. We recommend that you leverage as many ways mentioned in this article as possible to minimize an interest rate on your loan.
Since autopay and loyalty discounts aren’t typically decent, refinancing a student loan is the most common way to reduce college loan interest rates. So make sure to check out several private student loan providers to get the best interest rate and payout terms for your college debt.
Nevertheless, keep in mind that even small discounts can make a difference and enable you to use your saved money elsewhere.
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