Here are 5 ways to cut those interest rates.
1. Comparison shop for student loan refinancing
It sounds like a no brainer, but you would be surprised how many people just pick a lender they see on a billboard or on the side of a bus. Think of it this way: before you buy a car, you usually don't just show up at a car lot and pick your favorite car.
Shop around first. Compare lenders. Read a student loan refinance guide. Find the best one for you.
What criteria do you want to look for when you refinance student loans?
- Lender interest rates
- Lender repayment terms
- Total savings from student loan refinancing
- Customer service
With student loan refinancing, you can combine your existing federal and private student loans into a new, single student loan with a lower interest rate.
That lower interest rate means you could save substantially each month on your student loans. That's real money back in your pocket.
2. Have strong credit
If you have excellent credit, the chances are you can get a lower interest on your student loans. Why?
If you have stronger credit, you are viewed as a responsible borrower and more likely to repay your student loans. Therefore, lenders view you as less of a credit risk.
Aim for a credit score of at least 680 to refinance your student loans. The higher your credit score, the better the rate.
3. Choose a variable rate loan
When it comes to private student loans or student loan refinancing, the good news is that you have a choice between interest rate types.
You can choose a fixed rate or variable rate student loans.
A fixed interest rate means that the interest rate will never change during the term of the student loan. A variable interest rate means that your student loan rate will rise or fall with movements in interest rates.
If you want a lower interest rate, then a variable interest rate student loan typically has a lower rate than a fixed interest rate student loan.
Remember, in a rising interest rate environment (such as in the current economic environment), the cost of variable rate student loans may become more expensive over time if rates continue to rise.
4. Choose the shortest repayment term
Want a lower interest rate?
Choose a shorter repayment period.
That's right. The faster you take to pay back those student loans, the lower interest rate you can receive. Why? The sooner you repay your student loans, the sooner the lender gets paid back. That means the lender is taking less risk with its capital.
For example, you will usually get a lower interest rate on a 5-year loan term than a 20-year loan term.
While the monthly payment may be higher, the overall cost of the student loan will be substantially less because you will save on interest costs.
5. Apply with a co-signer
Most student loan lenders will allow you to apply with a qualified co-signer.
A qualified co-signer can be a family member such as a parent or spouse with a strong credit score and income who assumes financial responsibility for the student loan, including for student loan refinancing. Their strong credit and income profile can help you get approved and get a lower interest rate.
Even better news - some lenders offer "co-signer release," which means (assuming certain requirements are met) that you can have the co-signer released from financial responsibility for your student loan after they help get you approved.