6 Ways To Lower Your Student Loan Debt Interest Rate

Student loan payments can be quite a burden, especially if you’re a new graduate. For starters, you’ll likely be earning the lowest pay of your career in your first job. For this reason alone, any way that you can reduce your payments will be a welcome relief.

While some student loans have been forgiven by the federal government, there’s no guarantee that this policy will continue or that your specific loan will qualify. That’s why it’s a good idea to be proactive and do whatever you can to reduce your student loan debt interest rate on your own .

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Check For Discounts

Most student loans offer some type of discount. Just like many auto or personal loans, for example, many student loans offer a 0.25% discount or more for setting up automatic payments. Some banks may offer discounts for making a certain number of on-time payments, while others, like Citizens Bank, offer a discounted rate of 0.25% off your loan if you have an existing banking relationship.

Try To Negotiate

While you might not always succeed, it can pay to try to negotiate your rate with your lender. In the financial world, you actually have more leverage if you’re falling behind on payments and struggling to pay. You might also have more success negotiating if you find a lower rate at one of your lender’s competitors, offering the bank an opportunity to match it.

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Refinance

One of the best ways to get a lower rate on a student loan is to refinance it, just as you might with a traditional car loan or home mortgage. As lending is a competitive business, with a little shopping around, you may be able to snag an interest rate significantly lower than your current loan. This is particularly true in a falling-rate environment — as is likely to occur in 2024 and/or 2025, as the Fed begins its planned series of rate cuts.

To see how much you could save by refinancing, imagine you have a $25,000 student loan with a 10-year maturity and an 8% interest rate. If you could find a loan with a 6% rate, your payments would drop from $303.32 to $277.55. Even better, over the life of your loan, you’d save over $3,000 in interest.

Team Up With a Co-Signer With Better Credit

When it comes to loans, borrowers with better credit always get lower rates. If the interest rate on your student loan is high because you have bad credit, one way to get around this is to take on a co-signer with good credit. As your co-signer will be fully responsible for making payments on the loan if you fail, it reduces the risk that the lender takes. This can translate into a much lower interest rate on your loan.

Pick a Plan That Offers a Lower Rate

The federal government offers income-repayment plans that can help lower your payment in two ways. First, the plans automatically reduce your payment to between 10% and 20% of your discretionary income. If you aren’t earning that much, your payment might be lowered by a considerable amount. Second, these plans extend the maturity date of your loan to 20 or 25 years, which can also lower your monthly payment. As an added kicker, whatever you haven’t been able to pay off by the loan’s maturity date will be forgiven.

Extend Your Loan’s Maturity Date

If you can either switch to a new loan or negotiate the terms of your current one, extending your maturity debt is a way to lower your payments. Note that an extended maturity date won’t necessarily lower your interest rate (unless you refinance), but it can reduce your monthly outflow.

Important Note: Federal vs. Private Student Loans

There are pros and cons to both federal and private student loans. However, it’s important to understand the differences, especially when it comes to loan rates and flexibility. For example, federal student loan rates are generally lower than what you can get with a private student loan, and only federal student loans are eligible for forgiveness. However, not all borrowers can qualify for federal student loans. On the upside, you’ll likely have a better chance to renegotiate your rate with a private student loan, as federal loan rates are set by Congress, not individual lenders.

This article originally appeared on GOBankingRates.com : 6 Ways To Lower Your Student Loan Debt Interest Rate