What to know when looking at student loan interest rates

Getting the best rate is critical when taking out a student loan — but doing that can often seem overwhelming or even downright impossible. How do you know which rate type to choose? More importantly, how can you lower the rates you receive from lenders?

Understanding what goes into student loan rates can help you make the right decision. Learn more about student loan interest rates in the analysis below, and visit Credible to compare personalized loan interest rates from multiple student loan lenders at once. 

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How student loan interest rates are determined

The government sets the rates on federal student loans based on the 10-year Treasury yield and other factors. Those are consistent for all borrowers across the board.

Private student loan rates, on the other hand, vary much more widely. Every lender sets its own rates, basing them on an index like the prime lending rate. From there, borrowers are quoted based on their credit score and other determinants.

"Private student loan interest rates depend on several different factors, some of which are in your control — and some that aren’t," says Howard Dvorkin, a certified public accountant and chairman at Debt.com. "Depending on the lender, your credit score and market trends could have an effect on your rate."

Want to see what rates you qualify for? Use an online tool like Credible to compare student loan rates without affecting your credit score.

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What to consider when comparing interest rates

When looking at student loan offers, there are a few things you’ll want to consider — and not just how low or high the rate is.

The first is whether it’s a fixed or variable interest rate. With a variable-rate loan, your interest rate can change monthly, quarterly or annually, changing your payment along with it.

"Beware of variable interest rates and instead try to lock in a fixed interest rate," said Ilian Georgiev, CEO and co-founder of debt management app Charlie. "Variable interest rates — which are tied to things like the Fed rate — will seem like the cheaper deal right now, but keep in mind that as the Fed increases interest rates — and it near certainly will — your monthly payments will go up. So, something that looks affordable today might not be affordable in a year."

The monthly payment, as well as the term of the loan, or how long it will take to pay off, should also play a role in your decision.

"When considering two or more student loans, a borrower should compare the monthly loan payment and the total loan payments, especially if the two loans have different repayment terms," says Mark Kantrowitz, publisher of Private Student Loan Guru. "Generally, borrowers should choose the loan with the highest monthly loan payment they can afford since this usually saves them the most money."

Visit Credible to view a rates table to compare fixed and variable interest rates from multiple lenders at once.

How to get a lower student loan interest rate

Since lenders have full control over the rates they set, your rate quotes can vary wildly from one company to the next. This is why it’s vital to shop around.

"You compare the best deals on clothes, groceries, and electronics. Why not the same thing with student loans?" Dvorkin asked. "Finding a loan you qualify for with a lower interest rate might take you a while, but you’ll be happy you did when you save thousands on interest." 

A good way to ensure you’re quoted low rates is to improve your credit score. The best interest rates are typically reserved for borrowers with the best credit, often those with 740 scores or higher.

Another option is to set up autopay, which could qualify you for valuable rate discounts, or, if your credit score is low, consider bringing in a cosigner for your loan. If the cosigner has good credit and a steady income, it could help you secure a lower rate.

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Refinancing may be able to help

If you’re unhappy with the rates you have on your current student loans, refinancing can be an option for reducing them. This essentially replaces your old loans with a new one — ideally one with a lower interest rate than what you’re currently paying.

"If the borrower's credit score has improved or the borrower applies with a creditworthy cosigner who has a better credit score, the borrower might qualify for a lower interest rate," Kantrowitz said. "Refinancing is a good option for borrowers whose loans are from several years ago when interest rates were much higher."

Visit Credible to learn more about student loan refinancing and to get personalized rates from multiple lenders. You can also use a student loan refinance calculator to see how much you can save. 

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Shop around to get the best deal on a student loan

Student loan rates vary, so make sure you shop around. Graduate and professional students may need to take out extra private loans, so it's important to make sure you're getting the best rate on your student loan debt. Compare rate types, repayment terms, and rate, and consider boosting your credit to give you the best shot at a reduced rate. 

As Dvorkin put it, "You can’t control the economy, but you can improve your credit score to get the best rate possible."

Visit Credible to review private lenders for student loans now. 

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