On average, class of 2020 graduates who took out loans left college with $29,927 in student loan debt. On its own, that’s a lot to stomach. But with a 5.8% interest rate (the average student loan interest rate among all existing borrowers) and a 10-year repayment plan, you’ll end up paying a total of $39,510 for your student loan.
With thousands of dollars on the line, learning how to get a lower interest rate on student loans could save you big time. Options can vary, depending on the type of student loans you have and what your current rates are. Keep reading to learn more about your choices.
Federal vs. Private Student Loans
First, it’s important to understand that your options for securing a lower student loan interest rate will depend on the type of loans you have.
With federal student loans, for instance, consolidating them through the Department of Education will result in a slightly higher interest rate, not a lower one. That’s because the new rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. Also, rates are set by Congress, so there’s no wiggle room for negotiation. For the most part, your best bet is to refinance your loans with a private lender.
Even then, federal student loans tend to have lower interest rates in general, especially for undergraduate students. So unless your credit history is in stellar shape and you have a high income, you may be stuck with what you have. Plus, if you refinance your federal loan with a private lender, you forgo any federal loan forgiveness or forbearance programs.
With private student loans, on the other hand, you’ll have more opportunities to work with your current lender or a new one to save on interest, lower student loan payments and more.