One of the most common student loan questions is, can I negotiate a lower interest rate? Sometimes a borrower has made payments on time for years and thinks they are in a position to get their interest rate lowered. Other times borrowers are barely getting by and want to get a lower rate in order to keep up. Regardless of your individual circumstances, the fact remains: negotiating a lower interest rate with your lender is very difficult. The good news is that it is not impossible.
What makes student loan negotiation so difficult?
If you have ever bought a car, odds are pretty good that you have at least some familiarity with negotiation. The dealer says the sticker price is X, you say the best I can do is Y and you meet somewhere in the middle.
Unfortunately, student loan negotiations don’t work this way. This is because the lender has all of the power, or leverage, in the situation. When you buy a car, as the buyer you can always walk away. The car dealer knows this fact, and because of your ability to leave the lot without a purchase, a dealer may lower the price to entice you to buy. In a student loan negotiation, you have almost zero leverage. The contract is already in place, the terms have already been decided. If you don’t pay, they can sue.
A closer car example would be trying to get the dealer to lower the price of the car three years after you bought it. You may think the engine problems you have justify a price break, but the dealer has little incentive to lower the price. Odds are pretty good you are stuck.
How do I get the leverage?
The only way to shift some of the power to your side is to make a compelling argument that your lender will not be making money on your business in the future. There are essentially two ways of making this case. Option one is to convince your lender that you are going to take your good credit and high income to another lender. With a huge list of student loan refinancing companies, there are many opportunities to take your business elsewhere. Some lenders will not care. Others, such as Earnest, will evaluate your finances again and lower your rate if it is appropriate. As the refinancing market gets more competitive, more companies will adopt the Earnest approach. Some will advertise it, while others may reluctantly do so for some borrowers.
The other way to get the power in a negotiation is to convince your lender that unless they lower your rate, you won’t be able to afford the payments. This approach is tricky because your lender will likely offer a forbearance or a deferment. They like that option because the interest continues to grow and you will just owe more in the long run. Lowering interest rates means lowering profits. The challenge here is to convince the lender that a lower interest rate is the only way for you to stay current on your loans. To our knowledge, Navient has a specific program for lenders in this situation. It is called the rate reduction program. If you can show that your payments are too high and that lower interest rates will be necessary you can get enrolled.
A Note about Federal Loans
These tactics don’t apply to federal student loans. The federal government has programs in place to help borrowers stay current, such as income driven plans. There really is no negotiating with the Department of Education, and your interest rates are set by Congress. A persuasive phone call is not going to be very productive.
Talk to the Right Person
The average customer service representative probably doesn’t have authority to lower the interest rate on your student loans. Before even starting the discussion, make sure you are talking to the right person. If they are not permitted to provide the remedy you want, ask to speak to someone who is.
Negotiating is never easy. With student loans it is extra difficult. The key to a good negotiation is being willing to follow through on what you say. If you tell a car dealer that you will leave unless they lower the price, be ready to walk out the door. With student loans, if you are threatening to take your business elsewhere, back up your tough talk. Look into a few of the companies offering consolidation services and have a good idea of what you can expect from a rate perspective. Show them you are on your way out the door. The same concept applies if you are going to argue that you can’t afford your loans. If you are paying an extra $100 each month, you will have a hard time convincing them that you truly need a lower rate.
Getting a lower interest rate has nothing to do with what you want or think you deserve. Getting a lower interest rate is all about finding someone with the authority to help and convincing them that it is in their best financial interest to help.