Have you ever sat down and looked at how much interest you're paying each month on your student loans?
Depending on your principal balance and Annual Percentage Rate (APR), interest can add hundreds of dollars each month to your loan payments, draining your income. But did you know that you may actually be able to change your interest rate? Read on for an overview of student loan interest rates and to learn more about options to potentially change your rate.
Interest is the fee you pay for borrowing money, and your interest rate can dramatically affect how much you pay over the life of your loan.
Federal student loan rates are set by Congress, and the exact rate will depend on the type of loan and the date it was originated. More details on federal loan rates can be found on the Federal Student Aid website. If you have private student loans, your interest rate is often set by the lender when the loan originates and is based on various criteria, such as your creditworthiness. In either case, you can find the current interest rate of your student loans on your most recent billing statement.
If you think that your interest rate is no big deal, think again.
“The interest rate on a student loan affects the cost of the loan,” says student loan expert Mark Kantrowitz, publisher at Cappex.com , a website that helps young people browse colleges and scholarships. As a rule of thumb, a lower interest rate will usually save money as compared with a higher interest rate, and the higher your principal loan balance, the more money you'll owe in interest.
Even a small difference in your interest rate can add up. “For example, compare the monthly loan payments and total payments on a $10,000 loan with a 10-year repayment term and a fixed interest rate of either 6% or 4%,” says Kantrowitz. “The monthly payment on the 6% loan is $111 and the total payments are $13,322. A borrower with a 4% loan will save about $10 a month and almost $1,200 over the life of the loan.”
The added costs of interest are especially pronounced if you have a higher interest rate from a federal Direct PLUS Loan.
You may be eligible for a small interest rate reduction if you sign up for auto-pay with the servicer of your student loan(s).
“Borrowers can reduce the interest rate on their student loans by signing up for auto-debit, where the monthly loan payment is automatically transferred from their bank account to the lender,” adds Kantrowitz.
Depending on the loan servicer, these interest rate reductions range from a quarter to a half of a percentage point. While that's helpful, it may not be enough to get you serious savings. Luckily, there may be another way to lower your interest rate: refinancing your student loans.
When you refinance student loans, you exchange the existing loans you want to refinance for a single private student loan that may have a lower interest rate depending on your credit score. So, instead of paying multiple loans each month (each, potentially, with its own interest rate), refinancing allows you to pay one lender one monthly payment at one interest rate.
Refinancing can simplify your student loan payments and may save you money. In some cases, you may be approved for a lower interest rate and as noted earlier, even a few percentage points can have a significant impact on the amount of interest you pay over time. Check out our overview of the benefits of refinancing for more information.
Every lender has their own policies and standards for approval, but generally, if you've made on-time payments and have good credit, refinancing could be a viable option to lower your interest rates. Some lenders may also require that you’ve received a certain level of degree to refinance, so ask the lender for their eligibility requirements before applying. With the Citizens Bank Education Refinance Loan® former students are eligible to apply as long as they are no longer enrolled in school and the loans being refinanced are in repayment.
To learn more about the Citizens Bank Education Refinance Loan® and factors you should consider before applying, check out “Should I Refinance My Student Loans?” and details on eligibility, or call 1-888-411-0266 to speak with a Student Lending Specialist today.
|Helpful Tools & Information|
|Refinance Loan Glossary||An easy-to-use guide for the terms you’ll encounter in the student loan process.||Learn more|
|FAQs||Answers to frequently asked questions about the Education Refinance Loan.||Learn more|
|Loan Refinance Estimator||Use our Refinance Estimator to see how much you could potentially save.||Learn More|