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How to Lower Interest Rates on Variable-Rate Private Student Loans

Rapidly increasing interest rates make student loan repayment especially difficult. These strategies will help keep things manageable.

Written By: Michael P. Lux, Esq.

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Inflation has hit some private student loan borrowers especially hard. Those with variable-rate student loans have seen their interest rates skyrocket.

Worse yet, inflation shows no signs of slowing, which could mean high-interest rates are here to stay.

There are options for borrowers stuck in this situation, but there isn’t a method that will work 100% of the time for all borrowers.

What causes private student loans to suddenly have high-interest rates?

Lenders love to market variable-rate interest loans.

During times of low interest rates, which happened when many of us were in college, variable-rate loans looked especially tempting.

The problem is that when interest rates go up, the interest rate changes on the loan. Rates may change monthly, quarterly, or yearly. In many cases, lenders don’t give borrowers any notice that their interest rate is increasing.

Over the past year, interest rates have increased dramatically due to inflation. As long as inflation persists, borrowers can expect their variable-rate loans to stay at a high interest rate.

The Big Goal: Debt Elimination

As interest rates go up and monthly payments increase, many borrowers struggle.

These hard times can cause borrowers to get desperate. Many borrowers ask for temporarily reduced payments or a break from payments, such as a forbearance or a deferment.

Sadly, these options often only serve to make things worse. Unless you are dealing with a temporary hardship likely to end soon, a deferment or a forbearance is probably a mistake.

When managing private student loans, the goal should be debt elimination. The debt may unnecessarily linger for years if your only concern is manageable monthly payments.

The Quick Fix: Deal with the Brutal Interest Rates

There is a long list of options for borrowers to get lower interest rates on their student loans.

For borrowers with a steady job and solid credit score, refinancing is usually the quickest way to make interest rates manageable.

Is student loan refinancing dangerous? If you have federal student loans, refinancing with a private lender can be a risky move.

In the case of private loans, there is significantly less risk because the debt is already a private loan. In a private loan refinance, the debt simply moves from one lender to another. Refinancing makes sense if you can get a lower interest rate from a refi lender.

As of June 2024, the following lenders offer the lowest fixed-rate loans on a student loan refinance.

RankLenderLowest RateSherpa Review
1Earnest4.99%Earnest Review
2Splash Financial5.09%*Splash Financial Review
3ELFI5.48%ELFI Review

For borrowers looking for lower interest rates at the lowest possible monthly payment, a 20-year loan often makes the most sense.

The following lenders offer the lowest interest rates on 20-year fixed-rate loans:

RankLenderLowest RateSherpa Review
1Splash Financial6.08%*Splash Financial Review
2Laurel Road6.55%Laurel Road Review
3ELFI6.64%ELFI Review

Getting Assitance from the Government

The government offers generous perks for federal borrowers, such as income-driven repayment and student loan forgiveness.

Unfortunately, these borrower protections are not available on private student loans. Additionally, converting private student loans into federal student loans is nearly impossible.

However, because many private student loan borrowers are also federal student loan borrowers, these federal perks can help borrowers attack their private debt.

If you have a high-interest private loan and a low-interest federal loan, attacking the private loan first can result in significant interest savings. For example, if a borrower can switch from the standard repayment plan to an income-driven repayment plan, they could reduce their monthly bill by hundreds of dollars each month. This extra money would allow the borrower to pay extra towards their private loan.

Getting Help from a Cosigner

Generally speaking, cosigning a student loan is an objectively bad idea. The cosigner takes on tremendous risk, and the borrower gets all the benefits.

That said, many parents, relatives, and friends decide to cosign on loans to help loved ones attend college.

If you are struggling to repay your private loan, it is critical that you talk to your cosigner. They may choose to help make payments so that their credit score isn’t negatively affected.

Another option for cosigners would be to cosign on a refinance loan. The cosigner is still attached to the debt, but the borrower gets a lower interest rate and has a better chance of eliminating the loan without forcing the cosigner to make payments.

Preventing Interest Rate Increases

Sadly, borrowers don’t have many options to prevent their lenders from raising interest rates.

If you have a variable-rate loan, there are only two ways to stop the rates from going up:

Perhaps worst of all, these limited options mean the borrowers struggling the hardest will also have the most difficult time keeping interest rates manageable.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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