College and trade school graduates are often saddled with student loans that greatly impact their ability to budget and pay for high-ticket items such as first homes or cars. While your education should give you a financial advantage over the long term, your student loans can be an onerous monthly expense. Consolidating them into one loan probably resulted in a lower interest rate as the consolidated loan's rate is figured as a weighted average of individual loans. Getting an interest rate reduction on the consolidated loan is more difficult, but can be done if your credit score is high enough and your payments have been on time and in full.
Steps to Reducing Your Consolidated Student Loan Interest Rate
Review your credit report for any errors and work to clean them up. The credit reporting agencies are made up of humans just like you, and they make mistakes. Get any proof you need to clean up your report, write to the agencies and follow up regularly with phone calls and additional letters. You can get a free copy of your credit report once a year from any of several online sources.
Improve your credit score. You might consider waiting to ask for an interest rate reduction until you can demonstrate noticeable improvement in your credit score, a measure of credit worthiness. Scores rage from 300 to 850; the higher the number, the better a credit risk the lender considers you to be. A score above 650 might carry enough weight to get you some consideration when you ask for an interest rate reduction. The best ways to increase your credit score are to pay your bills on time and pay down your total debt.
Ask for the interest rate reduction. Here, persistence pays off. You will need to demonstrate to the lender why you deserve the reduction. The best way to do this is by letter to the lender so that you can document your request. Follow up with phone calls and additional letters, if necessary. If they turn you down, get the lender to document the reason. If you can mitigate the reason -- say by making another year's worth of on-time payments -- you can then go back to the lender and ask again a year from now.
Examine other ways to reduce your loan payments. If you cannot get an interest rate reduction, pay down your loan early by making additional principal payments. Over the life of the loan, the savings can be thousands of dollars. And, watch out for late payment fees ,which can also add substantially to the cost of your consolidated loan. Just a few late payments per year can add hundreds of dollars to your loan cost.
- Make sure your letters and phone calls to the lender are professional in tone, direct and to the point.
- Review your credit score and report annually.
- Pay your monthly obligations on ime and in- full.
- Keep your debt load as low as possible.
- Do not get discouraged, and keep at the process. A lender might be impressed with your diligence, especially if other candidates for the interest rate reduction are not as persistent.
Lisa Nielsen is a marketing consultant for small businesses and start-ups. As part of her consultancy, she writes advertising copy, newsletters, speeches, website content and marketing collateral for small and medium-sized businesses. She has been writing for more than 20 years. She is also a business strategist, trainer and executive coach. Nielsen holds a Master of Business Administration from the University of Miami.