Reduce Student Loan Debt by Negotiating Down Your Interest Rate

If a borrower is looking to reduce student loan debt, then he or she should look to reduce monthly payments owed on the loan. One way that this can be done is through negotiating for a lower interest rate. Lowering the interest owed monthly on a loan does not lower the total amount of money that the borrower owes, it just makes the monthly payments more affordable. The borrower will need to increase the term of the loan, which means that payments will be made for a longer period of time, but cash flow problems will be improved upon.

Be a Good Customer

Lending companies are more willing to negotiate with a reliable borrower than an unreliable borrower. A reliable borrower is one that makes payments on time and notifies the lender before missing payments. An unreliable borrower simply stops making payments when he or she can no longer afford them.

Lending companies will give lower interest rates to borrowers who meet certain criteria. For example, if a borrower makes a specific number of consecutive, on time payments, the lender will most likely be willing to reward the borrower. The time requirement here is usually from two to four years. Also, if a borrower elects to have payments automatically withdrawn from his or her account the lending company may be willing to lower the interest rate. 

How to Reduce Interest Rates

The first option that a borrower should look into is whether or not it is possible to consolidate existing loans. If the borrower is paying multiple monthly payments on multiple loans to multiple companies, consolidating, or making the individual loans into one, can lead to one monthly payment at a lower interest rate. 

Another option that a borrower can look into is refinancing his or her student loans. Once a borrower establishes credit, which he or she usually does after graduation from college, he or she is eligible to receive better rates. Refinancing means that the borrower will take out a new loan to cover the old loan.  In reality, the new loan replaces the old loan and the old loan no longer exists. With a better credit score, the borrower will pay lower interest rates on the new loan and will not need to worry about the higher interest rate owed on the original loan. 

Loan modification can also result in lower interest rates. With modification, the borrower still owns the same loan and still makes payments on the same loan. The lending company lowers the interest rate because it does not want the borrower to default. In order to qualify for loan modification, a borrower must present himself/herself as unable to make monthly payments for an acceptable reason. Such relevant causes are job loss, medical expenses, and emergencies. 


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