If you’re like most graduates with student loan debt, you’re probably interested in just about any option you have to reduce your student loan interest rate and bill–whether you just want to pay less each month or you’re thinking about the long term investment.
One strategy for reducing the amount that you pay on your student loans is to lower your interest rate. Depending on what the terms are of your loans, you may be able to lower your interest rate, which would in turn enable you to both lower your monthly payment and lower the amount of interest that you pay over the life of the loan. You may also be able to shorten the length of your loan with a lower interest rate or possibly extend your repayment period but dramatically lower your payment.
Consolidating federal loans won’t lower your interest
Before we get to some ways to lower your interest rate, it’s worth noting that taking advantage of student loan consolidation through the U.S. Department of Education is not helpful in lowering your interest rate. This is because your consolidated balance will have an interest rate equal to the weighted average of your original loans.
So, while consolidating can be useful for simplifying your payments and even lowering your monthly payments (by extending your repayment terms), it won’t be helpful if you’re just looking to lower your interest.
There are other ways to lower your student loan interest rate
Although federal loan consolidation won’t help lower the interest that you pay, there are some other solutions.
1. Sign up for autopay
Want to quickly and easily lower your interest rate? Many lenders offer a small rate savings if you sign up for autopay each month. This is a super-simple way to lower your interest without having to refinance or take any other steps.
You may be able to knock off as much as a quarter of a percent, which seems small, but can definitely add up over time.
2. Refinance your loans through a private lender
If you have federal loans or private loans with high interest and you want to get a better rate, then you can look to private student loan lenders as a way to consolidate and refinance.
Most lenders allow you to refinance both federal and private loans, and you can get rates as low as 2.13%.
Your rate will depend on which lender you choose and your specific credit situation, but it’s easy to get rate offers and compare them to see if you an get a better deal.
3. Get a shorter repayment term
In many cases, you can get a better interest rate by refinancing over a shorter period.
For lenders, the shorter term equates to less risk of default, meaning they can offer better rates to borrowers who are planning to pay off their loans more quickly. For you, that means saving money on interest for paying off your loans sooner.
So, if you can afford the higher monthly payments associated with a shorter repayment term, then you should consider your refinance options as a way to lower your interest.