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How to get a low-interest student loan

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Before you accept any type of loan, it’s always wise to do a little research first. You should compare potential lenders, loan options, repayment terms, fees and, of course, interest rates.

As you look into student loan options, you’ll find that there are two main varieties — federal and private. Federal student loans feature fixed interest rates that are the same across the board for all borrowers. However, private student loans can have a wide range of interest rates to consider.

What are current student loan interest rates?

Here are current student loan interest rates, as of February 2022:

Federal student loans 3.73% to 6.28% fixed
Private student loans 0.94% to 11.98% variable, 2.94% to 12.99% fixed
Refinancing loans 1.64% to 7.58% variable, 1.99% to 7.84% fixed

How to get the lowest student loan interest rate

When you’re ready to start shopping for student loans, use these strategies to find the lowest interest rate available.

Compare rates

If you plan take out federal student loans to finance your educational expenses, your rate depends solely on the type of loan you choose. Federal student loan interest rates are the same for all borrowers for each type of loan, no matter the borrower’s income or credit score. The interest rates for the upcoming school year determined every spring.

If you’re considering a private student loan, it’s critical to dig a little deeper. The interest rate you receive with a private lender depends on factors like your credit score, income and whether you’re applying with a co-signer. Getting quotes with a few different lenders is the best way to find the lowest interest rate for your situation.

Apply with a co-signer

Many students are young and haven’t had the opportunity to establish a credit history. If you don’t have a credit history, you might find it difficult to qualify for a low interest rate on a private student loan by yourself. Some lenders will charge a higher interest rate or decline your application entirely.

If a loved one with a well-established credit history is willing to co-sign for your loan, their good credit could potentially work in your favor. Just keep in mind that co-signing is a big commitment; your loved one will literally be putting their credit score on the line to help you lock in a better rate.

If you miss a payment or default on your loans, the lender will come after the co-signer. Even if you never pay late, the addition of the student loan on your loved one’s credit report could affect their ability to qualify for future loans, so it’s important for your co-signer to understand the risks involved.

Improve your credit score

Good credit can work to your advantage with private student loans, just as it can with most other types of loans. It’s always a good idea to improve your credit score before applying for a new loan.

Higher credit scores signal to lenders that you’re a lower credit risk, which means you’re more likely to repay your loans on time. As a result, many lenders may see you as a more attractive borrower and offer you lower interest rates in an effort to win your business.

Take advantage of autopay discounts

Federal and private student loan lenders both offer a discount if you sign up for automatic monthly payments. Autopay discounts will normally save you 0.25 percent off your normal interest rate.

Autopay may also be a good idea from a credit perspective. When you opt for automatic payments, the odds of you accidentally missing a payment go down. This can protect you from late payments that might damage your credit score.

Choose the shortest loan term

Your loan term, also called the repayment period, impacts the amount of money you pay back to your lender each month. When you select a shorter term, it typically translates to a higher monthly payment, but loans with shorter repayment periods often feature lower interest rates.

To pay less interest, choose the loan with the shortest repayment term — though make sure that you can still comfortably afford the monthly payment.

Ask about discounts

In addition to autopay discounts, some lenders offer other opportunities to save money on your private student loans. For example, you might come across interest rate reductions such as:

  • Loyalty discounts when you have (or open) a bank account with the same lender.
  • Repeat customer discounts.
  • On-time payment discounts (after you make a certain number of timely payments).
  • Interest-only payment discounts.
  • Special promotional discounts designed to attract new customers.

The size of these rate discounts can differ from lender to lender, and some don’t offer discounts at all. But if you can stack multiple rate discounts together, you may be able to amplify your savings.

Can you get a good student loan interest rate with bad credit?

If you have poor credit, a federal loan is your best option for getting a competitive interest rate. Federal loans don’t take your credit score into account, so every borrower gets the same interest rate. For the 2021-22 school year, the interest rate for undergraduate federal student loans is 3.73 percent — competitive with what private companies offer.

If you do need to borrow money from a bad credit private student loan lender, getting a good rate will be trickier. Most private student loan companies require that you have a credit score of around 640 or higher to qualify, but having a score near that minimum will translate to higher rates. In some cases, having bad credit could mean getting a student loan interest rate in the double digits.

There are some ways to get around this. Some lenders advertise the fact that they work with poor-credit borrowers, heavily weighing factors like income and earnings potential ahead of credit. You can also get a good student loan interest rate if you apply with a co-signer who has good credit.

The bottom line

Securing a lower interest rate on a loan might not seem important when you’re still in school. But before you commit to a student loan that could take several decades to pay off, it’s crucial to make sure that you’re securing the best deal available. Even a marginally better interest rate could add up to significant savings over the life of your loan.

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Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor