How to Reduce Student Loan Interest

Student loan rates typically have long repayment periods. They can stretch anywhere from 10 to 35 years. While this means your payments are usually low, it unfortunately also means that you will be paying a lot of interest. Even a low interest rate adds up to a surprisingly large sum of money when you consider applying it to 10 or more years of payments. Reducing student loan interest, even a fraction of a point, has the potential to save you thousands of dollars.

Consolidate your federal loans. Shop around to find a consolidation package that will offer you the lowest locked in interest rate. This not only saves you money by reducing your interest, but often lowers your monthly payments.

Make your payments on time. Many companies offer incentives for timely payments. For example, according to loan experts at Student Loan Ed, Stafford loan holders can receive an interest rate decrease of one percent after three years of on-time payments and an additional one percent decrease after four years of on-time payments.

Consider private consolidation loans. If you've been out of college for some time and have built good credit, you may be able to take out a private consolidation loan with an interest rate that's lower than your current rate. Threatening to do so is also a great bargaining chip to help persuade your current lender to give you a reduction.

Use a cosigner. If you apply for a loan with someone else's strong credit behind you, you can usually receive a much lower interest rate than if you took the loan out on your own. If you've already taken out you loans, consider taking out a private loan, as in Step 3, with a creditworthy cosigner.

Have your payments automatically drafted from your checking account. Many lenders offer an automatic payment incentive that includes a small reduction in interest. This typically yields a reduction of around a .25 percent or less, but every bit helps.


  • If you lender doesn't offer any specific interest reduction programs, call them and ask them for an interest reduction. Explain why you deserve a rate reduction, including your timely payments and worthy credit history. It can't hurt to try.