The thought of being able to negotiate a lower student loan interest rate sounds tempting. Unfortunately, this tactic is not always fruitful, especially with federal student loans. The interest rates on federal student loans are set every year by the federal government and cannot be negotiated. The rate changes every year but once it is set, it remains the same for that year.
The interest rates on private student loans are set by the lender. Every lender sets their own rate of interest depending on your credit score and number of other factors. Negotiating a lower interest rate with private lenders is rarely successful.
Although you may not be able to negotiate a lower loan interest rate with either federal or private student loans, you are not necessarily stuck with a higher rate forever. You can do few things to lower the original rate of interest on your loan.
Tips for lowering your student loan interest rate:
Set Up Automatic Payments
One the simplest things you can do, is to set up automatic payments. Setting up your bank account to make the payments automatically every month, can reduce your interest rate by .25%. It may sound like a small amount, but it does add up to a substantial sum over the life of the loan.
Setting up automatic payments is very simple. You give written instructions to your bank to withdraw the amount to be paid and transfer the money to the lender’s account on a certain date. Once you do this, your payments will be made automatically every month on the date mentioned.
When setting up automatic payments, the one thing you need to be careful about is that there is enough money in your bank account to cover the amount to be paid. If you have insufficient funds you could end up losing money by way of overdraft penalties and fees.
Make Sure Every Payment Goes Out On Time
Lenders appreciate responsible borrowers who make their payments on time. If all of your payments are made on time for at least 3 to 4 consecutive years, most lenders will reward you with a .25% interest rate reduction. Some lenders even apply this lower interest rate automatically to all future payments if you meet their minimum number of timely payments.
If, for whatever reason, you choose not to enroll in automatic payments, you must take care to make sure that every payment goes out on time every single month to meet the minimum timely payment condition. One late payment could make you ineligible for the discounted rate.
Refinance Your Loans
Refinancing is a popular solution that many students opt for in order to lower the interest rates on their existing loans. You can refinance your high-interest student loans by taking out a new loan at a lower rate of interest. You will have to talk to different lenders to find one that offers the best rate on the refinanced loan. Having good credit and a steady income helps tremendously when it comes to getting the best interest rate on your refinanced loan.
Don’t be discouraged by the fact that you cannot negotiate a lower student loan interest rate. There are things you can do to get a better rate on your current student loans.
Use College Raptor’s free Student Loan Finder to compare lenders and interest rates side by side.