Post-college life

How to determine if your student loan interest rate is too high

Student loans can be complicated. The truth is that many of us don’t know what our interest rates are, and if we do – they could be better.  

 

If this is the case for you, don’t worry. You’re not the only one. In this post, we’ll help you find your current interest rates (if you don’t know them). Then, we’ll help you determine if your rate is too high. If so, we’ll walk you through ways to lower it.

 

First, find all your current student loan interest rates

 

The first step to finding your current interest rates is to know who holds your loans. Below are popular student loan providers for both federal and private student loans. Do any sound familiar?

 

Federal Student Loan Servicers

·     FedLoan

·     Great Lakes

·     Navient

·     Nelnet

 

Private Student Loan Providers

·     Ascent

·     Citizens Bank

·     College Ave

·     CommonBond

·     Discover

·     Sallie Mae

·     Well Fargo

 

If you’re not sure who your lender is, start here. If you have federal student loans, the Federal Student Aid Information Center should have your information (your best bet is to give them a call at 1-800-433-3243). If they don’t have your information, then you likely hold private student loans.

 

Another way to find your lender is to take advantage of sites like Credit Karma that give you free access to your credit history. Your student loans will be listed on your credit report, usually tagged with your lender’s name.

 

Keep in mind that many folks have both federal and private loans. It is possible that you took out a loan for each semester of school, which means you could have multiple loans, with different lenders. Make sure you know all of the lenders you work with.

 

Once you know who to contact, you can follow the simple steps below to find your current interest rates:

 

1.     Log in to your loan servicer website (you may need to create an account)

2.    View your loan(s) balance and your interest rate(s)

 

If you can’t recall your login information, you can call your lender and ask their customer service team to provide you with this information.

 

Follow the same steps for all of your loans, both federal and private. It can be helpful to record this information by taking screenshots or recording it on a spreadsheet.

 

Keep in mind that federal loan rates are set by the government each year, so just because you have a federal loan doesn’t mean that you have the current federal rate. Historical rate info is accessible on the federal loan website.

 

Now that you know your rates, it’s time to answer the question: is your rate too high?

 

 

How high is too high?

As a rule of thumb, if your rates are in the double digits – that’s too high. Anything at or above 10% is a high interest rate for student loans. Generally speaking, an interest rate lower than 7% is a much healthier place to be for student loans.

 

 

If your interest rate is too high…what can you do?

First of all, don’t panic. Even if you signed a contract with a lender to repay the loan at a particular interest rate, you still have options. There are ways to lower your student loan interest rate. The sooner you start, the less you’ll end up paying in total interest.

 

Enroll in automatic payments

If you have private loans, lenders will usually offer a small rate reduction for those who sign up for automatic payments. You can enroll in automatic payments from your lender’s online portal or by calling their customer service.

 

Consistently pay your bill on time

Some private lenders will offer an interest rate reduction if you make three or four years of on-time payments, but you have to do it consistently. Miss one payment and you’ll lose out on this benefit. Enrolling in automatic payments can make it easier to qualify for this benefit. Check with your lender to see if they offer this benefit.

 

Pay more than your minimum payment (when possible)

Every time you make a monthly payment, you have the option to pay extra. When you do, that extra payment will be applied directly to the principal, which will reduce your interest payments in the future. So, every time you can possibly pay more—do it!

 

Although it’s uncommon, some lenders may charge fees on extra payments. Be sure to familiarize yourself with your lender’s prepayment policy before making any extra payments.

 

Refinance your student loan

Refinancing may be the best option to get a large reduction in your interest rate. When you refinance, you get a new interest rate based on your current income and credit – so depending on your situation, you may qualify for a lower rate.

 

Many refinancing lenders allow you to check your rate for free on their website. This allows you to preview what rate you could qualify for, with no obligation to continue and no impact on your credit score.

 

If the rate you see isn’t as attractive as you’d like, try adding a cosigner with strong credit and income– this can lower your rate. You can also refinance your loans multiple times (usually at no cost). And remember, you can refinance as many or as few loans as you like – it’s up to you.

 

Heads up: due to the Covid-19 outbreak, most federal loans currently have no payments due and 0% in interest until September 30th, 2020. If you refinance loans held by the federal government, you will lose this benefit. To learn more about this program, visit CommonBond’s student loan relief guide.  

  

And if you want more information about refinancing in general, you can check out CommonBond’s comprehensive guide to paying off your student loans.

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