Reduce Student Loan Debt by Negotiating Your Interest Rate

You can reduce the student loan debt you will have in the future by making smart decisions about your interest rate today. Student loans are unique in that the terms are flexible and negotiable in ways other loan terms are not. Student borrowers can elect multiple different payment methods, combine loans from multiple sources and even elect grace periods to help them afford the cost of college. Understanding how these terms will affect the rate you receive and the cost of your loan will help you make an informed decision before signing a loan contract.

Start Payments Immediately

Longer loan terms lead to higher interest rates. You may think it sounds challenging to meet student loan payments while you attend school. However, your lender will likely be willing to work with you to set low monthly payments. You can pay "interest only" payments for years. When you do this, your lender can shorten the length of the loan. Your interest will also compound much less frequently, reducing the total cost of interest over time. Electing to work while you attend college can allow you to meet even a portion of your living expenses, reducing the size of loan you need to take. Lenders will also gain confidence through your ability to earn a salary, even if it is modest, while you are still a student. You will find lower interest rates through this increase in lender confidence.

Use Collateral

Most student borrowers face the challenge of having neither assets nor income when they take their loans. This increases the likelihood the borrower will default, leading to a higher interest rate. You can address this challenge by building a small asset base before you attend school. A good place to start is purchasing a car. Once you have equity in your automobile, you can use it as collateral on your student loan debt. This asset will not likely be large enough to fully secure your student loan. However, you may be able to secure at least a portion of the loan or one of your debts.

Consider Future Income

Lenders are more likely to extend good interest rates and options to a student who has a very high chance of a large income in the future. If you are planning to go to graduate school, the lender may be concerned it will take years for you even to begin repaying the debt. The lender may also be afraid you will have to take on additional debts during graduate school, meaning you will have too much debt for a young borrower. Instead of allowing a lender to question when and how you will repay the debt, prepare a statement of purpose to submit with your loan. If you intend on getting a vocational degree, such as in nursing, teaching or information technology, provide information on the average salary you can anticipate earning on your first year out of college. Since you will be prepared immediately for a career in your field, lenders will see you as a lower risk borrower.

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