Student Loan Moves to Make While Interest Rates Are LowDecember 28, 2021
For now, interest rates are near historic lows, and the Federal Reserve has signaled that they are likely to keep rates there — at least for now. However, some experts speculate that the Fed may begin to raise rates as early as 2022.
So, now the question becomes how to take advantage of low interest rates. For now, rates are low, but they could be going up. If you’re looking into how to get a lower interest rate on student loans, or otherwise position your finances, now is a good time to strategize. Let’s take a look at how to lower student loan interest and other steps you can take to move forward.
How to take advantage of low interest rates
When deciding how to take advantage of low interest rates, it’s important to consider your current needs, as well as your financial goals. There are three main things you can do to maximize the current situation before rates rise: pay down current debt with variable rates, take new debt for specific items or refinance existing debt (including student loans).
Pay down current debt
If you have current debt with variable rates, now is a good time to pay it down. This is especially true if you have some debt with higher interest rates. When the Fed starts increasing its benchmark rate, you’ll see other rates move higher — costing you more money in the long run. Consider tackling your debt with extra payments toward principal now, before rates rise.
This approach can work for student loans as well. Right now, federal student loans are in forbearance and not accruing any interest through May 1, 2022. While you won’t end up with a higher interest rate, now can be a good time to reduce the principal as much as possible. If you have other debts, putting what you would have paid toward federal loans can be a smart move to reduce your other loan balances, depending on your situation and goals.
Take on new debt
It seems counter-intuitive, but now might be the time to take on new debt for certain items — while you can get a lower fixed interest rate. If you know you’ll need to buy a vehicle in the next couple of years, or if you’re planning to buy a home, now can be a good time to get a loan with a low fixed rate.
Additionally, if you plan to take on private student loans to fill an education funding gap, you might be able to lock in a lower fixed interest rate, saving you money overall.
Refinance current debt
With rates near historic lows, now might be a good time to refinance existing debt, before rates go up again. If you have a mortgage or car loan, refinancing could save you thousands of dollars over the life of your loan.
Additionally, refinancing student loan debt can be a good move right now. When trying to figure out how lower student loan interest, refinancing can help. You get a lower rate, a more manageable payment and could potentially be out of debt sooner.
How to lower student loan interest
One of the biggest issues facing many borrowers right now is how to deal with student loan debt. Refinancing is one of the easiest ways to lower student loan interest. When you refinance, you can potentially replace your current loans — with higher interest rates — with a new loan that has a lower interest rate.
It’s possible to refinance both federal and private student loans. However, if you refinance federal loans, be aware that you lose certain benefits and protections. For example, if you refinance federal loans, you no longer have access to income-driven repayment or Public Service Loan Forgiveness (PSLF). So, carefully weigh the options before you move forward. But, you could potentially refinance your private student loans and get a lower rate, saving you money and taking advantage of lower interest rates.
How to get a lower interest rate on student loans
When trying to figure out how to get a lower interest rate on student loans, there are a few strategies you can try:
- Improve your credit. Refinancing your student loans requires good credit if you want a better rate. Check to see if there are ways you can improve your credit so you can refinance to a lower rate. Here are a few tips that could help you get an 800 credit score.
- Compare rates. Check with between three and five lenders to see what types of rates you can get. Don’t forget to include ELFI as you compare student loan lenders for refinancing.*
- Get a cosigner. In some cases, if you don’t have enough income or your credit doesn’t allow you to get the best rate, you might be able to get a cosigner. With a cosigner who’s willing to take responsibility for the loan if you default, you could see a potentially lower rate and save money.
- Negotiate. You might be able to negotiate a lower rate on student loans. Check with your lender to see if there are programs you can take advantage of, including autopay, to reduce your student loan interest rate.
Even though interest rates have been low for quite some time, they could potentially start rising soon. When that happens, debt becomes more expensive. Now is the time to position your finances to find out how to get a lower interest rate on student loans and other types of debt.
Consider locking in fixed rates so that you have a payment that fits your budget, no matter what happens next. Carefully consider the pros and cons of different strategies and choose a course of action most likely to benefit you.