The current interest rate cap for student loan refinancing is 8.25%, but that doesn't mean that you can't enjoy a lower rate. Federal student loan consolidation interest rates are set by the federal government, so comparing lenders based solely on rates won't uncover the best deals. To understand how these savings work, it's important to understand how the student loan consolidation rate is determined:
What determines your student loan consolidation rate?
Your interest rate will be a weighted average of your current federal loan interest rates, rounded up to the nearest 1/8 of a percent. For example, consolidating a $14,000 loan at 7.14% with a $7000 loan at 5.0% would have a consolidation rate of 6.5%. See how this is calculated.
Be wary of any lender who says they can save you money by offering you a lower base interest rate than your current loan—they can’t. The rates for student loan consolidation are dictated by the Federal Student Loan Consolidation Program. However, there are two ways that you can lower your consolidation interest rates.
1. Consolidate before your grace period ends
Your consolidation rate is determined by the current interest rate of your Federal Student Loans. What many graduates don’t realize is that the interest rate on their loan during the grace period is 0.60% lower than when the loan moves into repayment status. This means that you can enjoy the benefits of lower interest rate payments for up to 30 years just by refinancing during within the first 6 months after graduation.
2. Shop around for borrower benefits
Where lenders do differ, is in the money saving incentives they offer borrowers. One student loan refinancing company may offer a discount for on-time payments. Another might offer a percent reduction for automatic withdrawal of payments. ScholarPoint offers all borrowers generous money saving incentives for both on-time payments and auto pay.
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