Finding the best student loan rates is worth the effort as you’ll likely be borrowing thousands of dollars you will pay back over many years. The lower your rate, the less interest you will pay during this time, and the easier it will be to become debt-free. The good news is it’s not very difficult to find the best rates when you take out student loans. You can ensure you’re paying the lowest rate possible by getting quotes from several different lenders to compare options; understanding the difference between federal and private loans; improving your financial situation before borrowing; and considering borrowing with a cosigner. This guide will explain more about finding the best student loan rates so you can ensure your educational debt doesn’t cost more than necessary.
Federal vs. Private Student Loan Rates
When trying to get the best interest rates for student loans, you should be aware that the process for setting rates differs between federal and state student loans. Federal direct student loans offer the same fixed interest rates to all borrowers regardless of their credit scores, income, or other financial credentials. The year in which you borrow and the kind of loan you get determines your rate. Because federal loan rates are all fixed rates, the rate will not change for the life of the loan. And you can’t improve or change the rate by shopping around — the Department of Education imposes the same rates on every borrower. Private student loans do not offer the same rate to all borrowers. Your individual rate, within the range of rates the lender charges, is determined based on your own financial credentials. While private student loan lenders typically have a minimum and maximum APR that they charge, your credit score, income, and other financial factors will determine where your rate falls within those parameters. So, while you can look at average student loan interest rates for private student loans, your rates may be above or below average, depending on whether you are a well-qualified borrower or not.
Federal Direct Student Loan Rates
In most cases, federal direct student loans from the Department of Education offer affordable fixed-rate loans to borrowers. But, there are different federal loan programs. The table below shows the current rates for federal student loans.
Interest Rates for Federal Direct Loans
The table below shows the interest rate you will pay for federal direct student loans if your loans were disbursed on or after July 1, 2023, but before July 1, 2024.
| Type of Loan | Academic Year | Interest Rate |
|---|---|---|
| Direct Subsidized Loans and Direct Unsubsidized Loans | Undergraduate | 5.50% |
| Direct Unsubsidized Loans | Graduate or Professional | 7.05% |
| Direct PLUS Loans | Parents and Graduate or Professional Students | 8.05% |
Federal direct student loans offer affordable rates, so many people will find they can qualify for the best interest rates for student loans if they borrow through the Department of Education. These loans also come with borrower benefits that private loans don’t, including more forbearance and deferment options, income-driven payment plans, and loan forgiveness options. However, federal loans do come with origination fees, which need to be considered. You can use a student loan calculator to calculate the interest rate on your federal loan.
Private Student Loan Rates
Private student loan rates do differ substantially from one lender to another as well as based on your financial credentials. As a result, your rate could be determined based on:
- Which lender you borrow from
- Your credit score
- Your income
- Your loan term length
- The type of degree you are earning
- The amount you borrow
Because there is so much variation in private student loan rates, the best option is to get quotes from multiple lenders to see how much interest you would be charged. This will enable you to get the best interest rates for student loans that you can qualify for.
8 Tips to Get the Best Rates on Student Loans
Taking eight simple steps will ensure you get the best interest rates for student loans. Here’s what you can do to improve your rate.
1. Compare Lenders
If you can qualify for federal student loans, you usually should take those out first, even if you could get a better interest rate from a private lender. You don’t want to give up the benefits they offer. If you are considering getting private student loans, you will want to get multiple quotes. Provide your information to at least three different lenders to compare rates and terms so you can find out what the best interest rate for student loans is based on your credentials. Getting quotes online is simple and straightforward, and you can do so without even undergoing a hard credit check in most situations. With ELFI, you can get a rate quote and view your loan options without affecting your credit score.*
2. Choose Between Fixed or Variable Rates
While federal student loans are all fixed-rate loans, private student loan lenders give you a choice between fixed vs. variable rate loans. Variable rate loans often have a lower starting rate, but there is more risk involved. The loan’s interest rate is linked to a financial index. If the index shows rising rates, your rate could go up during your repayment period which would mean monthly payments and total borrowing costs also go up. Fixed-rate loans may have a higher starting rate, but you will never have to worry about interest costs or monthly payments changing during your repayment period.
3. Improve Your Credit Score
A lower student loan rate is one of the benefits of having a good credit score. When you have good credit, lenders view it as less risky to give you a loan. As a result, they will offer a more competitive rate. The good news is there are ways to improve your credit score if yours is lower than you’d like. Some techniques to boost your score include the following:
- Pay down your debt to ensure you are not using more than 30% of your available credit.
- Make all of your payments on time so you can develop a positive payment history.
- Take on a good mix of different kinds of debts, such as using credit cards as well as installment loans, such as car loans.
- Ask someone with good credit to make you an authorized user on their account in order for the account to be listed on your credit record so you can get credit for its positive history.
- Leave old credit accounts open to get a longer average age of credit.
Improving your score can have a major positive impact on your quest for the best rates for student loans.
4. Use a Cosigner
One of the single best ways to ensure you get the best student loan rates is to apply with a cosigner. A cosigner guarantees the loan, giving creditors another person who they can collect money from in case you default. If a cosigner has good credit and a higher income, lenders will feel more confident they’ll get paid back since they could go after the cosigner for the funds if you don’t pay.
5. Get a Shorter Loan Term
Another possible way to get the best rates for private loans is to choose a shorter loan repayment term. Lenders may view shorter-term loans as less risky, both because there isn’t as much time for fluctuations in interest rates to affect the profitability of the loan and because there’s less time for unforeseen events to occur that could cause you to default. Loans with shorter terms can not only help you save on interest because you’ll qualify to borrow at a lower rate. You’ll also save because you won’t be paying interest as long.
6. Take Advantage of Autopay
It is very common for lenders to offer autopay discounts. In fact, you can usually get a 0.25 percentage point reduction in your interest rate if you sign up to have automatic payments taken from your account. Both federal and private loan lenders will let you save on interest using this approach in most circumstances.
7. Ask About Interest Rate Discounts
In some cases, banks and credit unions may be willing to offer an interest rate discount on student loans — especially to current customers who the bank has an established relationship with. It doesn’t hurt to ask your bank if there are opportunities to save. Just be sure you compare what your bank is offering with what other lenders have available so you don’t miss out on the very best student loan rates.
8. Consider Fees and Penalties
You should look not just at the interest costs of a loan but also at the fees as well. Sometimes lenders charge origination fees or impose things like a prepayment penalty. These can affect the total costs to borrow, and you should take that into account when deciding which lender offers the best interest rates for private student loans.
Refinancing Your Student Loans for a Lower Interest Rate
In many cases, you can get the best student loan rates after graduating and having a job. But you’ll have already borrowed by then. The good news is student loan refinancing is a great option to save on interest. Although you don’t want to refinance federal loans since you’d have to convert them to private loans (and give up borrower benefits), there’s often no downside to refinancing private loans since you already have a private loan and would just be switching to a different one. If you can get a lower rate by refinancing than you are paying on your current loan, this can reduce interest costs, monthly payments, and even total costs over time. Check out student loan refinancing interest rates to see if you can reduce your interest rate with a refinance loan. This will often be possible if you’ve improved your financial credentials since earning your degree. When you refinance, you’ll get a new loan at a more competitive rate, and use it to pay off the proceeds of your old debt. You can keep making payments on the new loan but make more progress on your debt with each one.
Refinance Your Student Loans with ELFI
ELFI can help you to refinance your student loans if you are convinced of the benefits of student loan refinancing. ELFI offers competitive rates for refinance student loans and makes refinance loans available to qualified borrowers who meet the ELFI’s underwriting criteria. Learn more about ELFI’s eligibility for student loan refinancing today so you can see if you could potentially reduce your rate by getting a new ELFI loan and paying back your existing student debt with the proceeds.
