Is Your Student Loan Lender Overcharging You?

By Jen Williamson Updated on April 25, 2019

Ever wonder if your student loan lender is keeping something from you?

You know…one of those little white lies of omission. Something along the lines of “you could have a 4% lower interest rate on your student loans right now, if you played your cards right.” Harmless, right? Not really. Because that means you're paying a lot more than you should be.

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How this happens

There's one simple reason you're not getting a lower interest rate: if you have federal loans, your rate was set by the government. It doesn't matter if your credit worthiness increases—everyone gets the same rate based on the time they applied. 

If you have private lenders, your interest rate was set based on your credit worthiness back when you applied for the loan. If things have changed since then ... oh well. 

It doesn't matter whether you have federal or private student loans—if your credit score is over 700, you could probably be getting a much better interest rate. 

What you can do

The good news is that you can hit the “redo” button on your student loan and score a lower interest rate. But your lender isn’t just going to lay that offer in your lap. They’re in business to make money, after all.

Here’s how you can ensure they make less of it from you: refinance your student loans.

That’s the only step. We’d give you more steps, but it’s really that simple.

When you refinance, you replace your existing loan with a new one. Most people do this with multiple loans, which has has another benefit besides a lower interest rate—refinancing means you'll only make one payment every month, not several.

The new lender takes a look at your finances with a fresh eye. If your credit score is better than it was, they notice. If you’re making more money now than you did before, they notice that, too. And it all goes into the new rate they issue you.

If that sounds good, these lenders can help you take the next step. We’ve vetted a ton of companies to list you some of the best, most ethical lenders in this industry.

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How much could you save by refinancing? (Spoiler alert: a lot)

Imagine you had $37,000 in debt when you graduated. (And you may not have to imagine it—that’s around the average debt for a Class of 2016 graduate). And let’s say your interest is 6.8%—the rate for an unsubsidized Federal Stafford Loan disbursed before July 1, 2017.

Under the federal 10-year payment plan—the standard one everyone gets enrolled in—you’ll pay $425 per month on that loan. And over its 10-year lifespan, you’ll pay more than $14,000 in interest.

The average borrower who refinances saves around $253 per month—or $16,183 over the life of their loan. That’s a down payment on a house, or an epic journey around the world, or an emergency fund for your savings.

Even if you refinanced and scored an interest rate only 1% lower, you'd still wind up with an additional $2,000 in your pocket. You could buy a motorcycle off Craigslist with that money. Or book a vacation to Iceland.

See also: Is it Best to Pay Off Student Loans or Save for Retirement?

Go on—get yours

Maybe now you can see why that little lie of omission isn’t so harmless. In fact, maybe it’s a deal breaker.

We’re not saying your current lender is being purposefully evil. They’re just doing what's right for their business. But you should also be looking out for Number #1—and you can and should shop around for a better deal.

Hit the redo button on your student loans. Check out some of these lenders. And when the savings start rolling your way, be sure to send us a postcard from wherever you end up.

Go ahead and see how much you could save.

About the Author
Jen Williamson

Jen Williamson is a freelance writer living in Brooklyn. She has written for a variety of industries, including software, education, business, and personal finance. Prior to that, she worked at an adult literacy nonprofit in Philadelphia, where she coached nontraditional students in passing the GED test and applying for college. When she isn’t writing or reading—which is rare—she can usually be found planning her next travel adventure, training for a marathon, or sneaking in somewhere she’s not supposed to be. Read more by Jen Williamson