5 Tips for Reducing Student Loan Interest Rates

Reducing student loan interest rates is possible with strategies on both the front end and back end of the loan. If you plan ahead, you can save a lot on your loans simply by being smart in the time leading up to your application and through the application process. If you already have amassed student debt at a high interest rate, consider options to reduce through loan modification.

Front-End Strategies to Reduce Student Loan Rates

Build credit early - Start building your credit as young as possible. Take out a credit card in your name, use the card, and make payments regularly and on time. You may also take a car loan instead of paying the loan outright. Young people need to have a credit history long enough to justify an argument they are creditworthy if they would like a low interest loan.

Use a cosigner - If your parents or another other acquaintance is willing to assist you through offering to cosign on your loan the interest rates will be lower than if you apply by yourself. A cosigner allows you to borrow a good credit score, which is something most students do not have on their own.

Elect work-study options - Students who work while they attend school can make payments on their loan as they go, reducing the interest rates that may begin only after they graduate school. Many colleges offer work-study options for students to gain on-campus employment, reducing the strain that this places on the individual.

Apply for Need-Based Loans - The federal government offers subsidized loans to students who are very needy. These loans may be available without interest, have long grace periods, and have lower credit requirements for the application to be approved.

Payment Strategies to Reduce Student Loan Rates

Enter a loan forgiveness program - If you have federal student loans, you may be eligible for loan forgiveness through serving your community or the government itself. Electing to work for a non-profit organization at a low salary or serving in an institution like the Peace Corps gives you the change to have a portion of your loans totally wiped out.

Consolidate loans - You can consolidate both federal or private student loans, but the consolidation method will depend on the loan type. Federal loan consolidation is a process that requires taking another federal loan. However, this option is generally encouraged if you have more than one federal student loan. Private loans can be consolidated with a new personal loan from a private lender. This new loan should be attained at a lower interest rate since you have better credit and a higher income after graduation.

Settle debt - If you have enough cash to pay your debt off, then you may look into settlement options. Your lender may offer to accept a low, one-time payment to totally wipe out the debt. The lender still makes money, and many are happy to have the funds immediately. You may take cash loan to do this as well, but it is cheapest for you to simply settle with funds you have.

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