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3 ways to lower your student loan interest rate

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Tens of millions of Americans have borrowed money to pay for college. If you are one of those borrowers, chipping away at student loan debt might be one of your big financial goals.

If you’re trying to pay down private student loan debt, a good place to start is to see if you can lower your interest rate. Financial experts have a number of tips in their toolkit that could help you here — from automating your payments to refinancing. Below are three ways to lower the interest rate on your student loans and trim your student loan payments in general.

3 ways to lower your student loan interest rate

The best method for lowering your student loan interest depends on your overall financial picture.

1. Refinance your student loans

Best for: Those who have a solid credit score and want to pay off their loan quickly

If you have a solid credit foundation, are employed and plan to pay off your loan quickly, you may want to consider refinancing your private student loans. Well-qualified applicants may be able to take advantage of lower interest rates that could save money on monthly loan payments and overall interest fees.

Refinancing costs have come down markedly due to the coronavirus pandemic, with fixed APRs as low as 2.3 percent and variable APRs as low as 1.74 percent. You can sign up for a Bankrate account to see where current rates stand with our daily rate trends.

You may be able to refinance a student loan if you have bad credit, but your rates will likely be higher. A good credit score, by comparison, might improve your odds of qualifying for a lower interest rate.

To improve your credit score, be sure to follow good credit habits. Paying on time is a must. Reducing the balance on your credit cards (and thereby lowering your credit utilization ratio) might help too.

It’s also okay to be strategic and refinance multiple times, since there are no prepayment penalties on federal or private loans, and most loans don’t charge origination fees.

However, if you have federal student loan debt, be sure to weigh the pros and cons of refinancing into a private loan. Refinancing will cause you to lose federal borrower protections, like the automatic forbearance period and interest waiver through Dec. 31, 2022. Private student loans are also not eligible for the broad student loan forgiveness measures announced by the Biden administration. That trade-off may not be worth it.

Loan Student
Key takeaway
With the decrease in interest rates, it’s possible to save money on student loans by refinancing. But weigh your options carefully before proceeding, particularly if you have federal student loans.

2. Take advantage of discounts

Best for: Borrowers with predictable income or those who have multiple accounts with the same company

One of the simplest ways to lower your interest rate is by automating your payments. Many lenders offer discounts of 0.25 percent to 0.5 percent if you set up autopay from a checking or savings account.

It might not sound like much, but it can add up over time. You could save around $25 a year on a balance of $10,000.

“This may be the simplest and quickest way to realize a reduction in interest and requires little effort on the borrower’s part,” says Jon Long, an attorney with Long, Burnett, and Johnson who specializes in student loan debt.

With some lenders, you might be able to qualify for loyalty discounts as well. Loyalty discounts, if you can find them, reward borrowers (and co-borrowers) who have other accounts with the lender — like a savings account or another loan. SoFi, for example, offers a “member discount” if you take out a student loan after taking out a personal loan or an investment account. Check with your lender to learn what’s available.

Loan Student
Key takeaway
Autopay is a straightforward option for borrowers with little to no downside. It might also be beneficial to take out a student loan from a company with which you have an existing relationship.

3. Negotiate with your lender

Best for: Those who got their student loans during high-interest-rate environments

If you borrowed at the private level or if you have already refinanced, you might consider shopping around for a more competitive student loan rate and presenting it to your current lender. Although it’s a long shot, the lender might be willing to match that rate to keep your business.

Adding a co-signer might help you if you need to show better credit or more income to qualify for a lower interest rate. However, be aware that your co-signer will be equally responsible for the loan. That’s a significant risk to the co-signer. If you fail to make timely payments, both of your credit ratings could suffer damage and you both could be financially liable for the debt.

Loan Student
Key takeaway
Compare interest rates and see if your current lender is willing to negotiate.

What to do if you can’t get a lower rate

The money moves above may not be the right fit for every student loan borrower. However, there are other ways to trim your student loan costs, even if your interest rate remains the same.

Deduct interest payments from your taxes

You may be able to deduct a portion of your student loan interest payments from your topline earnings. If you’re eligible, the deduction could offset the amount of income you have to claim and reduce your tax obligation.

Here’s how it works for the 2021 tax year:

  • Individuals with an adjusted gross income (AGI) of less than $70,000 (or married filers whose income is less than $140,000) can deduct up to $2,500 worth of interest payments.
  • Phaseouts occur for single filers who make between $70,000 and $85,000 and joint filers earning between $140,000 and $170,000.

The student loan interest deduction is also an above-the-line exclusion from income, so you can claim the deduction even if you don’t itemize on your tax return.

Check for cash back specials or rebates

Though it’s not a lower interest rate, some private student loan lenders do offer cash back specials and refinancing rebates. Such offers could help you spend less money in the long run — if you use the cash wisely.

Credible, for instance, offers a $200 gift card if you’re able to find a lower rate than what it offers you.

Adjust your payment plan

Experimenting with different payment plans might also help you maximize your money and pay less in interest over time (even at the same interest rate). There are multiple strategies you can try with this approach, such as:

As you reduce your loan amount in regular increments, you’ll lower how much interest you pay in each installment.

“Many people find a way to bring in extra income, anything from online tutoring or yard work to a traditional part-time job to put toward student loan debt,” says Michael Micheletti of Freedom Financial Network. “If you can pay more, make sure to contact your lender or servicer and request that your extra payments go toward the outstanding balance, versus your next payment.”

Final considerations

Lowering your interest rate is one approach that could help you pay less overall on your student loans. But it’s not the only strategy that works. Being financially savvy is the best way to save money in the long run.

If you can’t qualify for a lower interest rate, try to find out why. Your credit score may be holding you back. Improving your credit can help you not only with your student loans, but with other types of financing as well.

Written by
Sarah Foster
U.S. economy reporter
Sarah Foster covers the Federal Reserve, the U.S. economy and economic policy. She previously worked for Bloomberg News, the Chicago Tribune and the Chicago Daily Herald.
Edited by
Student loans editor
Reviewed by
Nationally recognized student financial aid expert