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Want a low private student loan rate? Here's what experts say to do

Like any loan, it pays to shop around and compare different lenders before you lock in a private student loan rate. Getty Images/iStockphoto

With the 2023-2024 academic school year set to begin soon, many students are organizing their finances this summer and securing student loans for the fall. There are two types of student loans for borrowers: federal and private. While federal student loans offer flexible repayment options and potential forgiveness programs, private student loans are an excellent source of financing to bridge any remaining funding gaps.

As with any loan, it's a good idea to search for student loans that offer low interest rates and other favorable terms. Securing the lowest possible rate now can save you a substantial amount over the entire loan term and result in smaller monthly payments. Luckily, even in today's high rate environment, there are actions you can take to qualify for a great student loan interest rate.

Don't wait until the last minute to secure your loan — learn about private student loan rates you can qualify for now.

How to get a low student loan rate

Here are a few tips from experts that can help you secure a low private student loan rate:

Improve your credit score

As a general rule, higher credit scores lead to lower interest rates on most credit products, including private student loans. Establishing credit as a student can be challenging — but it's not impossible.

"Building your credit is crucial and necessary, and the sooner you start, the better," says Joe Camberato, CEO at National Business Capital. "Even while you're in high school, you can begin by becoming an authorized user on one of your parents' or a family member's credit cards. That serves as a type of foundation. Once you turn 18, you can apply for your own credit card and even car loans." To maintain good credit into the future, just make sure you also practice good credit habits, like not spending more than you can afford to pay off.

Get a qualified cosigner

While having good credit certainly helps, many borrowers may need a cosigner with good credit to qualify for private student loans. 

"It's still important to remember that traditional students typically won't have sufficient credit history or current income to qualify for a private student loan on their own, so they will need a cosigner who can meet those requirements in order to be approved," says Angela Colatriano, chief marketing officer at College Ave Student Loans.

As with most lending decisions, it boils down to risk. The less risk you pose as a borrower, the higher your chances of getting approved for a loan with a lower interest rate. As Jack Wang, a financial aid advisor at Innovative Advisory Group, notes, "Credit score shows how you handle your debt, but income is what pays the loan back. Get a co-signer that has a low debt-to-income ratio to secure a low rate."

Consider a shorter loan term

Another effective way to lower risk and snag a low private student loan rate is to choose a shorter loan term. Generally, shorter loan terms come with reduced rates since the lender recoups their money sooner.

"Borrowers can get a lower rate by selecting terms that lower the risk for the lender, such as selecting the shortest repayment period — typically five years — and making full principal and interest payments while in school," says Wang. "However, those loan terms may not be the best for the student borrower and co-signer."

Eric Daugherty, business development manager at Monterey Financial, agrees: "Longer loan terms typically come with higher interest rates and larger repayment amounts, as the loan provider is assuming more risk. However, they also typically come with lower monthly payments. It's important to balance the affordability of your monthly payment with the total cost of the loan over time."

Shop and compare lenders

Most loan providers allow you to prequalify and preview your interest rate online without harming your credit score. It only takes a few minutes to fill out an application and get an estimate of what the lender would charge you.

Colatriano advises, "Look for lenders that offer competitive interest rates and flexible repayment options that meet your unique budget and financial goals. You'll also want to look for a reputable student loan provider with strong customer service. Be sure to read reviews and check out servicing features such as a mobile app and the variety of contact methods available if you do need to reach out to customer service for help."

Start comparing private student loan rates you can qualify for today.

The bottom line

If you're thinking about taking on student loans for the upcoming school year, a smart first step is to look into federal aid options, which include grants, scholarships, and federal student loans. These loans come with key benefits, including income-driven repayment programs that adjust your payment based on your income.

Once you've exhausted your federal options, consider private student loans to pay any remaining education costs, including housing and food.

Due to the Federal Reserve's campaign of income rate hikes since March 2022, the landscape for student loans is different than in years past. "Right now is a tricky time for educational debt because the fed funds rate is higher than it's been since 2006," says Shavon Jones, an education lawyer representing post-secondary institutions with RegulatorGuards. "As a result, some private educational debt currently has a lower interest rate than public government-backed educational debt."

Private student loan interest rates vary from lender to lender, so compare several offers before deciding. Additionally, create a list of additional criteria you want to compare, such as flexible repayment options, the availability of a cosigner release option, and excellent customer service.

Get started today and learn more about what student loan options are available for you here.

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