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The Ultimate Guide To Lowering Student Loan Interest Rates

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In a Nutshell

Here are five ways to lower your student loan interest rates: Enroll in autopay for an instant interest rate discount. Refinance your student loans at a lower interest rate. Consolidate your student loans. Negotiate with your loan servicer for a lower interest rate. Pay extra toward the principal. (Okay, this doesn’t lower your interest rate, but it does help you pay less in interest over time!) Lowering the interest rate on your student loan can reduce your monthly student loan payment and potentially save you thousands of dollars over the life of your loan(s).

Written by Lawyer John Coble
Updated June 5, 2023

5 Proven Ways To Lower Your Student Loan Interest Rate

Borrowers can reduce their student loan interest rates using several strategies. It's best to explore all the ways to reduce interest rates before deciding which choices are best for your situation. 

1. Enroll in Autopay

The easiest way to lower your interest rate is by taking advantage of autopay discounts. Lenders incentivize borrowers to set up automatic payments because they ensure regular, on-time payments. This incentive usually comes in the form of a small interest rate reduction. The standard interest rate discount is 0.25%. If you have a private student loan, check the terms of your loan to see if your lender offers a discount for enrolling in autopay.

A note of caution: If you enroll in autopay, you’ll link your student loan account to either a bank account or a credit card. If you link to a bank account, be sure you have enough in your account to make your student loan payment. If not, you may have to pay an overdraft fee, which can offset the benefit of the autopay interest rate discount. If you use a credit card, it’s best to pay the balance off in full each month. Otherwise, you’ll incur interest charges on your credit card, usually at an interest rate much higher than what your student loan rate is.

2. Refinance Your Student Loans

Refinancing your student loans can not only potentially lower your interest rate, it may also reduce your monthly payment and shorten your repayment term.

When you refinance your loans, you essentially take out a new loan to pay off all your existing student loan balances. The new loan comes with its own interest rate, monthly payment, and repayment term. Each of these elements influences your monthly payment amount and the total amount you’ll pay on the loan over time.

The process to refinance your loans is the same no matter the source of your loans (federal or private), but there are different considerations for federal borrowers than private borrowers.

What You Need To Know About Refinancing Federal Student Loans

Over 90% of all student loans are backed by the federal government via the U.S. Department of Education. These loans offer borrowers more forgiveness and repayment options and protections than private student loans. When you refinance your loans, you turn a federal loan into a private loan and lose those benefits. The federal government doesn’t refinance student loans, only private lenders do. 

If you have federal student loans and you’re considering refinancing, first ask yourself:

If you answer “yes” to any of these questions, refinancing may not be the best option for you. Why? Because when you refinance your loans, you give up access to income-driven repayment plans, forbearance and deferment, and other protections (such as generous default protections and the ability to rehabilitate loans in default).

If you answer “no” to all these questions and feel that refinancing is a good choice for you, you can start shopping around the best student loan interest rates. Don’t just compare interest rates though! Run the calculations to see how much total interest you’ll pay over the life of the loan. This can vary widely with different repayment terms (the number of months or years you have to repay the loan).

If you have multiple federal student loans and you’re considering refinancing because you want to streamline your monthly payments, check out loan consolidation instead. (See below for more information.)

Two Tips for Refinancing Your Student Loan

Tip 1: Shop Around for the Best Student Loan Interest Rates

Getting quotes from several private lenders is the best way to secure the lowest interest rate possible for your refinanced loan. Before you get a quote, ask what information the lender needs from you and whether they can give a quote without running a hard check check (which will ding your credit a little). Many lenders can offer a quote without running a full credit check. Eventually lenders will want to look at your credit history and credit score to determine what interest rate you qualify for. Generally speaking, the higher your credit score, the more favorable your student loan rate will be. 

You can also ask lenders if they offer autopay or loyalty discounts.

Tip 2: Get a Co-signer if Needed

Using a co-signer who has good credit is a good way to refinance with a lower interest rate. A co-signer is usually a family member, such as a parent or spouse. The drawback is that if you default, the lender will come after your co-signer for repayment. Your relationship could suffer as a result.

3. Consolidate Your Student Loans

Most undergraduate and graduate students end up taking out multiple loans, sometimes from different loan programs, over the course of their academic careers. If you find yourself in this situation, consider consolidating your federal student loans. Consolidation is similar to refinancing in that you apply for a new loan (in this case a fFederal Direct Consolidation Loan), which repays all your previous loans and leaves you with just one monthly payment. You can’t consolidate private loans with federal loans, but you can consolidate different kinds of federal student loans like Direct Loans, PLUS loans, Perkins Loans, etc.

When you consolidate your loans, your new interest rate won’t be based on your credit history like it is with refinancing. Instead, the federal government uses a formula, which is the weighted average of the interest rates of all your existing loans. In practical terms, this may mean that you’re paying slightly more interest than you were for your lowest-interest loans but less than your highest-interest loans.

One caveat here is that consolidating your loans usually leads to a longer repayment period. With a longer repayment period, you end up paying more in interest in the long run. But there’s a workaround. Follow step 5.

4. Negotiate With Your Loan Servicer

If you have private student loans, it doesn’t hurt to call your loan servicer and ask them to reduce your interest rate. If you have a good credit score, they’ll know you have refinancing options that might give you a better interest rate. If that is the case, the servicer may lower your interest rate to keep from losing your business. This is much easier than student loan refinancing. 

If you have federal student loans, you don’t have the option to negotiate down your interest rate. But you do have several other advantages and options. You may be able to consolidate your loans or change your repayment plan to lower your interest rate or save oninterest payments over time. 

5. Pay Extra Toward the Principal Each Month

Okay, so we cheated a little here. Paying extra toward your principal each month doesn’t lower your interest rate, but it does decrease the total amount of interest you pay over the life of the loan. Combined with consolidating or refinancing your loan, this tip can save you hundreds or even thousands of dollars in the long term.

If you decide to do this, make sure that you specify that you want the extra payment amount to go toward the principal balance of your loan. While it may not seem like it makes a difference, even a small additional contribution toward your principal each month can pay off in the long run. Another great hack: Put unexpected income (or a portion of it) toward your student loan repayment. If you get a tax return, birthday money, or a bonus at work, devoting a certain percentage to repaying your loans can save you on interest over time.

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How Are Student Loan Interest Rates Determined?

Student loan interest rates vary by type of loan. Let’s look at how federal student loan interest rates are set and compare that to how private student loan interest rates are set.

How Are Federal Student Loan Interest Rates Determined?

Unlike other loans, federal student loan interest rates aren’t dependent on your income or creditworthiness. All student loan borrowers have the same interest rate as their peers for the same type of loan. Federal interest rates are determined by several factors, including legislation and the chosen index rate. The exact formulas can get complicated, but you can always find current rates on’s page on interest rates and fees.

How Are Private Student Loan Interest Rates Determined?

If you get a private student loan, your interest rate will be determined by the information on your credit report (including your credit score and payment history) and other financial considerations like your income and whether you have a co-signer. If you have excellent credit, you can expect a lower interest rate. 

If you don’t have great credit but can get someone with excellent credit to co-sign the loan for you, you can usually secure a lower rate. You may be able to use the lender’s co-signer release program to remove the co-signer from the loan, depending on eligibility requirements.

While federal student loans always have fixed interest rates, private student loans may offer a variable or fixed interest rate. If you have a variable-rate loan, your interest can change over the life of the loan. This can make budgeting for your monthly payments more difficult. It’s also hard to know how much total interest you’ll pay from the outset. Fixed interest rates stay the same over the loan term.

When it comes to federal vs. private student loans, you’ll want to consider each holistically. Don’t just look at the interest rates. Also consider the loan terms, monthly payment amount, eligibility requirements, repayment options, and hardship options.

In general, federal student loans usually have more favorable loan options than private loans. Examples include grace periods, deferments, forbearances, income-driven repayment options, and public loan forgiveness. Federal student loans come with maximum borrowing limits though. If you need more than you’re offered in financial aid, you may need a private student loan to bridge the gap. Just keep in mind that private student loans are offered by for-profit corporations, so the terms are often less generous and the repayment requirements are stricter.

Written By:

Lawyer John Coble


John Coble has practiced as both a CPA and an attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Lawyer John Coble

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