How to save more money on your student loans

Repaying your student loans can be a major financial burden, but the good news is, saving on student loans is possible if you can reduce the interest rate you're paying. 

The lower your rate, the less expensive your loans are, and the easier it is to pay them off.

There are a number of ways to reduce your student loan interest rate, including taking the following four steps.

1. Refinance student loans
2. Selecting a variable interest rate
3. Improve your credit score
4. Apply with a co-signer
5. Relief for student loans

1. Refinance student loans

The best option for saving on student loans is to refinance your loan. Refinancing your student loan can enable you to both reduce your monthly payment to increase your cash flow and to save thousands on interest over time.

Refinancing involves applying for a new loan with a different lender to pay off existing loans. If your new loan has a lower interest rate than your old ones, you'll reduce borrowing costs. Depending on how long your new loan repayment term is, you should be able to drop your monthly payment, reduce the total interest paid over time, or both.

If you can get a loan at a lower rate than you're currently paying, use an online student loan refinancing calculator to better understand what your new monthly payments and total borrowing costs could be.

Usually, you'll only want to refinance private student loans, as refinancing federal loans with a private refinance loan would mean giving up important borrower benefits only offered by the federal government. But you can consolidate your federal loans into one Direct Consolidation Loan, retaining your federal benefits with an extended term up to 30 years and possibly a lower monthly payment.

To see if refinancing is right for you, compare rates from multiple lenders at once with Credible

SHOULD I REFINANCE OR CONSOLIDATE STUDENT LOANS?

2. Selecting a variable interest rate

When you refinance your student loans, you'll have a choice of a fixed- or variable-rate option. A fixed-rate loan would lock in your rate for the entire repayment time while a variable rate is tied to a financial index and can change over time.

The average interest rate on variable rate loans is generally far lower than the average rate on fixed-rate alternatives.

Comparison shopping to get quotes from several lenders can also help ensure you're getting the most affordable loan possible as rates do vary. You can use Credible to compare student loan refinancing rates from multiple lenders at once without affecting your credit score.

According to Credible's data on student loan refinance interest rates, for example, a 10-year fixed-rate loan had an average interest rate of 7.01% in March 2023 for borrowers with credit scores of 720 or higher. By contrast, the average rate on a 5-year variable rate loan was just 5.01%.

If your goal is to get the lowest rate possible, a variable rate loan will likely provide it. While you do take on the risk of rates rising over time, they could also go lower. And if they do go up, you'd generally have the option to refinance again if you chose to do so.

3. Improving your credit score

If you're planning to refinance your student loans, you can maximize the chances of getting the most competitive rate possible by taking steps to improve your credit score before applying. That's because credit score is one of the most important financial credentials lenders use to decide if they should give you a loan and what interest rate they should charge you to borrow.

Improving your credit score can involve several different tactics. If there are errors on your credit report that have caused your score to be lower, you'll want to get them corrected ASAP. You should also work on repaying some of your debt, as this can help you raise your score by showing a positive payment history and reducing the ratio of your debt relative to your available credit, which is called a debt-to-credit ratio. The higher that ratio, or the more of your available credit you've used, the lower your score will be.

4. Applying with a cosigner

Often, you may not have the income or credit history necessary to get the best possible refinance rate. The good news is, student loan refinance lenders are generally willing to allow you to apply with a cosigner.

A cosigner shares legal responsibility for repayment if you don't pay back your student debt. Lenders consider their credentials and, if they're well-qualified borrowers, you'll get approved for a loan at a lower rate. Many lenders also allow cosigner release after you make a certain number of on-time payments, which means your lender may only need to guarantee the loan for a short time.

5. Relief for student loans

Before the Biden-Harris administration student debt relief plan was blocked, borrowers could apply for up to $20,000 forgiven on federal student loans, depending on certain criteria. 

However, for now, borrowers are unable to apply for this specific debt relief program while the plan is under review by the Supreme Court, with a decision to be made by June 2023. 

But payments and interest on most federal student loans were paused through at least June 30, 2023. This postponement was set to expire 60 days after this date, or pending litigation on student loan forgiveness.

Note: The Biden-Harris administration relief proposal only applies to federal student loans. Private student loans do not qualify for this specific program.

SUPREME COURT HEARS CASES ON BIDEN’S DEBT RELIEF PLAN

Beyond the pending Biden-Harris Administration proposal, you can seek student loan relief in other ways, including by:

• Other federal loan forgiveness programs: If you work for the government or a not-for-profit organization, you can qualify for the Public Service Loan Forgiveness program. Once you make 120 payments while working full-time, your loan will be forgiven. Additionally, there are other similar programs with different criteria, such as the Teacher Loan Forgiveness program.
• Income-driven repayment (IDR) plans: These IDR plans can provide relief with lower payments. Your monthly payment is calculated based on a percentage of your discretionary income and any balance is forgiven after you make payments for 20 or 25 years.
• State and private loan repayment assistance programs: You can find a loan repayment assistance program from some state governments, law schools, and bar associations. They typically provide assistance once you meet a required obligation. For example, the National Health Service Corps Loan Repayment Program offers $50,000 to those in the medical field once they work full-time in a rural, urban or tribal area for two years.
• Employer-sponsored repayment support: Repayment assistance can also be provided by your employer — many companies offer student loan support. Check with your HR Department to see if this benefit is available.

By taking these steps, you may be able to reduce your student loan costs substantially. To find out if refinancing could save you money, use an online tool like Credible to compare student loan refinancing rates and see which lenders allow you to add a cosigner.