How To Know If You Are Overpaying On Your Student Loans

With the national student debt now over $1.3 trillion, many Americans are carrying the significant burden of student loan repayments.

Many borrowers don’t realize that they have the opportunity to refinance their student loans at lower interest rates, which means they could save thousands of dollars each year.

Student loans come in a variety of shapes and sizes. Many borrowers don’t graduate with just one student loan, but with multiple loans, each with its own interest rate, repayment period, and fine print.

Understanding the types of loans you have and comparing them against the other options that exist can help determine if you are paying too much.

Why do interest rates differ?

Student loan interest rates are dictated by market conditions, often varying from year-to-year as a result. In the past five years, federal student loan interest rates have ranged from a high of 8.5%, before the financial crisis, to a low of 3.4%.

For example, if you first received a Direct Subsidized undergraduate loan in 2008, it came at a fixed interest rate of 6.8%. If you received that same loan in 2014, it would have had a fixed rate of 3.86%. Graduate federal student loan interest rates also tend to be higher compared to undergraduate loans.

What factors determine your interest rate?

Federal student loan interest rates are one size fits all. Every borrower receives the same interest rate regardless of his or her credit and financial history.

Many students also take out private loans to finance the remaining portion of their education. Private loans often have higher interest rates while in school because of borrowers’ limited financial and employment history. However once you graduate and land a steady job, you immediately become a stronger candidate and can often be rewarded with a more competitive student loan interest rate.

Are your interest rates competitive?

At Credible, we have a unique view of the student loan market and a deep understanding of the interest rates offered to graduates over the past 15 years.

We’re partnered with several major lenders in the student loan refinancing market, a number of which offer variable interest rates currently as low as 1.91% and fixed rates as low as 3.74%.

If you have graduated in the past 10 years, and have a stable employment record and income, you may be able to reduce your student loan interest rate by refinancing your student loans. For many student loan borrowers, refinancing is a valuable option that can offer substantial lifetime savings and reduction in their student loan interest rates.

It is important to note that refinancing your federal student loans can come with a number of trade offs, such as eligibility for income-driven repayment plans and forgiveness options.

Forward thinking graduates could to do their homework and speak with their existing lenders to get a complete picture of their student loans and assess if refinancing might be beneficial for them. In less than 30 seconds, you can see how your loans stack up by using Credible’s comparison tool.

Kristen Caron is a member of the DailyWorth Connect program. Read more about the program here.

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