Q: Can you give me some information on how to lower student loan interest rates? I would really like to get my high interest rate private student loan reduced to a lower interest rate that is more manageable.
A: As far as how to lower student loan interest rates, the options for borrowers are very limited (especially for private student loans). The interest rates on all student loans vary, and are either fixed rates or variable rates (federal student loans made after July 1 2006 are fixed rate, and while private student loans can be fixed rate, virtually all private student loans have a variable rate). Borrowers can find the details pertaining to their agreed interest rate and terms in their student loan promissory note.
Student loans cannot be refinanced in the same way other loan products may be refinanced. For student loans, virtually the only way to get a lower interest rate is to consolidate your current student loans into a new student loan (at a lower interest rate). However, student loan consolidation will likely extend the repayment period of your loans, so even though the consolidation loan has a lower interest rate and your monthly student loan payments may be reduced, the borrower could still end up paying more over the lifetime of the loan. In addition, for private student loan consolidation, it is unlikely a borrower would receive a better interest rate unless the borrowers credit has significantly improved since the time when the original private student loans were made, and/or the borrower consolidates with a cosigner who has excellent credit. If consolidation is not an option, borrowers can consider paying extra each month toward the principal balance of the loan to help less interest accrue on the loan.
Some sources may provide information to borrowers regarding using a personal or home equity loan to pay off the high interest student loan, however borrowers should research this option very carefully. Borrowers should understand that an option like this would result in losing any benefits specifically associate with student loans, such as tax credits/deductions and forbearance/deferment options.