By Lynnette Khalfani-Cox, The Money Coach
Did you know that you could negotiate loan rates and terms on any new federal student loans? To learn more, read below for my Tip #6 in a series of “Seven Smart Ways to Pay Off Student Loans Fast.” Read also Tip #1, Tip #2, Tip #3, Tip #4, and Tip #5.
Tip #6: If you’re willing to negotiate and ask for more favorable rates and loan terms than you’re first offered, you can find many lenders that will agree to charge a lower rate than the federal maximum interest rate.
Every July 1st Congress adjusts the interest rate caps charged on federal student loans. However, contrary to popular belief, Congress doesn’t “set” the rates for federal student loans. Instead, the feds impose a “maximum” interest rate that lenders can charge, then lenders set their own rates based on what the market will bear.
Interest rates are currently being reduced for federally subsidized Stafford loans. (With subsidized loans, the government pays the interest on the loans while the student is in school). As of this writing, the interest rates on new subsidized Stafford loans are:
- 6.0% for loans first disbursed July 1, 2008 to July 1, 2009
- 5.6% for loans first disbursed July 1, 2009 to July 1, 2010
- 4.5% for loans first disbursed July 1, 2010 to July 1, 2011
- 3.4% for loans first disbursed July 1, 2011 to July 1, 2012
Bonus Tip: Ask a lender for lower interest rates based on:
- having payments automatically deducted from your checking or savings account,
- making a set number of ‘on time’ payments (24 to 48 months of on time payments often qualifies you for a rate cut, and a few lenders will give you a break even sooner), or
- earning good grades, or qualifying for any other incentive programs a lender offers