It’s a frustrating feeling. After months, or even years, of making payments toward your student loans, the balance hasn’t budged. If you have a high student loan interest rate, you may find that you haven’t made much progress at all. One of the keys to paying off your student loans faster is to get a lower interest rate. A better interest rate can help you chip away at the principal more quickly, save money, and reduce your monthly payment. Even small interest rate adjustments can add up to significant savings over time. There are multiple ways to lower your interest rate. The best strategy for you will depend on the type of student loans you have, your credit score, and your financial goals.
1. Refinance Your Student Loans
If you have a loan with a high interest rate, it can be difficult to pay down your debt. But thanks to the benefits of student loan refinancing, you could potentially qualify for a lower rate and a new repayment term that makes managing your debt easier. With refinancing, you apply for a loan large enough to pay off your existing debt through a private lender like ELFI. After reviewing your application, debt-to-income ratio, and credit, the lender will determine whether you’re a good candidate for a loan and what interest rate you’ll earn. Borrowers with a good credit score and consistent income could get much lower rates than they have now, helping them save money. Refinancing can result in significant savings. According to Experian, the average student loan balance is $39,341. If you had that much debt and a 4.75% interest rate over a 10-year term, you’d pay over $10,000 in interest charges by the end of your repayment term. If you refinanced and qualified for a 10-year loan at 3.5% interest, you’d pay about $7,300 in interest charges — a savings of over $2,800.
| Existing Debt | Refinanced Loan | |
|---|---|---|
| Interest Rate | 4.75% | 3.5% |
| Loan Term | 10 Years | 10 Years |
| Monthly Payment | $412 | $389 |
| Total Interest | $10,157 | $7,342 |
| Savings: $2,815 |
To qualify for refinancing through ELFI, you must meet the following requirements:
- A credit score of 680 or above
- An income of $35,000 or above
- A credit history at least 36 months in length
If you don’t have a good debt-to-income ratio or a high enough credit score, you may still get approved for a loan if you add a cosigner to your loan application. To be eligible, the cosigner must meet certain income and credit requirements. Although student loan refinancing can be beneficial, it’s not always a good choice. If you have federal student loans, it’s especially important to weigh the pros and cons of refinancing your debt. By refinancing federal loans, you’ll lose your eligibility for programs like income-driven repayment plans, loan forgiveness, and federal student loan deferment or forbearance. Not everyone will qualify for a lower rate by refinancing their loans. You can always work on your credit and refinance later and, if interest rates drop again, you can refinance student loans more than once if you improve your credit or boost your income. If you aren’t sure if student loan refinancing is right for you or where to begin, check out this guide on how to refinance student loans.
2. Automate Student Loan Payments for Auto Pay Discounts
Some lenders allow you to set up automatic payments with your student loans. Even federal loan servicers offer that feature. To encourage you to enroll, lenders often offer autopay discounts. While most autopay discounts are small, even a minor discount can help you save hundreds of dollars over time. And, enrolling in autopay can also prevent you from missing student loan payments, which can damage your credit.
3. Negotiate With Your Student Loan Servicer
Over time, your financial situation and credit may improve. You might get a raise or promotion at work and get a higher income, or you might pay down your credit card balances and boost your credit score. If that’s the case, you may be in a good position to negotiate with your lender for a better rate. With federal student loans, negotiating won’t work — rates are set by Congress — but it can be an effective strategy with some private student loan lenders. Contact customer service and tell them that you’ve found you could get a better rate elsewhere and are considering refinancing. To keep you as a customer, they may be willing to adjust your rate. You can even pre-qualify for student loan refinancing and get rate quotes to use as leverage with your existing lender. Even if your lender isn’t willing to negotiate, doing research and prequalifying with different lenders can show you what types of rates may be available to you.
More Ways to Save Money Repaying Your Student Loans
Besides lowering your interest rate, there are other ways to save money during your student loan repayment journey:
- Tackle Debt With The Highest Interest Rate First: Not sure which student loan to pay off first? If you have multiple student loans, make extra payments toward the account with the highest interest rate. By paying off your most expensive loans first, you’ll save more money.
- Stick to a Standard Repayment Plan: With federal loans, you have the option of enrolling in an income-driven repayment plan to reduce your payments. But you’ll have a longer term and pay more in interest, so stay on a standard plan if you can afford it.
- Make Extra Payments: You can reduce the amount of interest that accrues and your overall cost by making extra payments. Even an extra $20 or $30 per month can add up to substantial savings.
- Claim the Student Loan Interest Tax Deduction: With the student loan interest tax deduction, you can deduct $2,500 or the actual amount of interest you paid toward your loans, whichever is less.
- Make Payments While In School: With most student loans, you don’t have to make payments until six months (or longer) after graduation. You can cut down on interest charges by making payments while you’re in school. Even just putting a few dollars per month toward your loans while you’re still a student can pay off over the long run.
Pre-Qualify for Student Loan Refinancing Today
Refinancing can be a powerful way to take charge of your debt. With ELFI’s student loan refinancing options, you can choose between fixed and variable interest rates and enjoy flexible repayment terms.* ELFI doesn’t charge application fees, origination fees, or prepayment penalties. Plus, you will be paired with a personal loan advisor that can guide you through the refinancing process. Try ELFI’s student loan refinancing calculator to find out how much you could save by refinancing your debt. When you’re ready to refinance, get a rate quote without affecting your credit score with ELFI’s Find My Rate tool.
