Student loan repayment is an important journey for every burrower. If you can make monthly on-time payments you can help build your credit score. It was noted that with the right income-driven repayment plan you can start making payment as per your financial capabilities. Most of the payments made are contributed towards the interest rather than the principal amount. Lower the interest rate, the more we can target the principal amount.
It is important to understand how student loan interest rates work, by understanding this you can start moving towards your student loan interest rate. The whole objective is to get out of debt faster.
Table of contents
- Seven ways to lower your student loan interest rate
- How student loan interest rate works
- Get out of debt faster
Seven ways to lower your student loan interest rate
Tired of paying too much-interset rate on the student loan. The solution listed down will help you reduce your student loan interest rate and become debt-free as soon as possible.
1) Student loan refinancing
As the word itself says 'refinance' Refinancing student loans is when the existing loan and the interest rate will be paid by a new lender and you have to start making a monthly payment to the new lender. The interest rate and other terms and conditions will vary from the old lender to the new lender. Upon refinancing you can try and qualify for a lower interest rate.
But to refinance to the new lender, they might have to meet certain criteria:
Your credit score - New lenders will have a check on your credit score, how good you are at it. Higher the credit score lower is the interest rate you can qualify for.
Income flow - How well is your income status, will you be able to pay the loan without any disturbance.
2) Have strong credit
A strong credit will help you lower your interest rate. The lenders will take you as a responsible borrower and it will indicate a less credit risk for them. So, to have a strong credit start cultivating a sound payment history. Which means start paying your loans on time, without any skip and failure.
3) Variable-rate loan
Variable rates depending on the market conditions, unlike federal loans whose interest rate is set by the US congress. If you have a strong understanding of the market and are not immediate, you can opt for a variable rate loan that can qualify you for a lower interest rate.
Now, what is a fixed interest rate and variable interest rate? A fixed interest rate is the one in which the interest rate is fixed and will never change during the student loan repayment. Whereas in the variable interest rate, the student interest rate may change during repayment. There are chances, wherewith rising interest rates the variable rate of interest rate may increase, but at the same time, with the decreasing interest rate the interest rate may decrease also.
4) Choose a longer repayment term
Desire to have a lower interest rate? Choose a longer repayment term. While choosing for a short term of repayment option you will get a lower interest rate. But one thing you should remember is when you choose longer-term the total interest paid throughout the loan term is more than what you would pay for a shorter term with a high-interest rate and without even knowing you pay a massive amount as an interest rate.
Student loan repayment is an important phase for a student loan borrower. It is advised to have an in-dept understanding of how it works so you can take full advantage of it.
5) Apply with a co-signer
Many people get confused, who a co-signer is. Don’t be confused. A co-signer is someone with strong credit and income who can give assurance for your student loan, including student loan refinancing. The strong credit and income profile of the co-signer will strengthen the borrower’s profile and help the person to get approved to refinance student loans and get a lower interest rate
For the relief of co-signer, some lenders provide co-signer release, which means the co-signer can be released from the financial responsibility of the borrower, once he meets the requirements.
6) Automate your payment
Low-interest rate is something that everyone wants. You can lower the interest rate mostly in two ways. One is refinancing which we have discussed above and second is automatic payments. Federal loans and most private lenders offer a 0.25% interest rate discount when you choose automatic payments which means the loan amount will be deducted automatically from your bank account and the bank details are very confidential with them, the borrower need not be worried for any fraud.
You can enjoy other benefits like you don’t need to worry about accidentally missing a payment. You can keep track of how much payment is deducted, in which date and in which month without any confusion.
But to enjoy all the benefits of automatic payments, make sure you have enough balance in your account, so that you don’t miss any payment and no penalty is charged for overdraft fees (not paying the loan on time).
7) Avail a loyalty discount on your student loan interest rate
Besides the automatic payment discount, you can enjoy the loyalty discount as well. A loyalty discount is when you have borrowed from a lender twice or thrice or have signed up as its member then they can give you a loyalty discount. In simple words, you can say that being loyal to a lender and their services helps you avail of a discount.
For example- Members of SOFI who previously borrowed from them, offers discount rate of 0.25%.
How student loan interest rate works
A student loan is nothing but a loan for education. When you borrow a loan, you have to sign an agreement to repay the loan with interest rate. Your lender will charge you with the monthly payment you mutually agreed, the payment will cover part of interest charge and the principal amount. In general, the majority of the payment made is towards the interest charges to be covered and not the principal amount.
Unable to get a lower interest rate?
Not everyone can get a lower interest rate. Refinancing the loans, or 0.25% discount is given to every desired borrower. But don’t get discouraged, there are other ways to save on interest rate.
Give high-interest student debt first priority- Don’t neglect your high-interest rate loan for any other loans, always pay the minimum amount due for all your debts without defaulting it.
Opt for standard repayment plan- One of the best ways to pay your loan and the interest without any problem is choosing for a standard repayment plan.
Worried about your college tuition? Learn more about student loans
Get out of debt faster
In order to save money, a lower student loan interest rate helps a lot. While qualifying for an interest rate reduction or by refinancing your student loans, will make a majority change in your cash flow.
But don’t get discouraged if you don’t qualify for any of the options. Even without lowering your interest rate there are still ways you can pay off student loans fast.