If you’re looking for the lowest interest rate possible, your best bet is to start with federal student loans. In 2023, the interest rate for Direct Unsubsidized loans was 6.54% (both undergraduate and graduate). Direct Subsidized Loans and Direct Unsubsidized Loans had an even lower interest rate at 4.99%.
Many borrowers wisely exhaust their federal loan options before turning to private loans to cover the costs of pursuing a college education. Because private student loan interest rates can vary (between 3.65% and 16.16%, in early 2023) depending on the lender, it’s important to shop around for the best deal. This is where a decent credit score can help significantly.
- Best low-interest student loan options
- Why to prioritize federal loans over private
- How to choose a low-interest loan
- Improve your chances of receiving a low interest rate
- Can I get a low-interest loan with a cosigner?
- Frequently asked questions
Best low-interest student loan options
College Ave
- Minimum income requirement: Does not disclose
- Minimum credit score: Does not disclose
- Loan terms: 5, 8, 10, 15 years
- Key requirements: Strongly recommends applying with a cosigner to qualify
Custom Choice
Powered by Cognition Financial, Custom Choice offers student loans for undergraduate and graduate students starting at $1,000. You can borrow up to $99,999 per year with a total aggregate limit of $180,000.
Custom Choice accepts applications from U.S. citizens and permanent residents, as well as Deferred Action for Childhood Arrivals (DACA) program recipients who apply with a cosigner who’s a U.S. citizen or permanent resident. International students, however, are not eligible for a Custom Choice loan.
If you apply with a cosigner, you may be able to release them from your loan after 36 on-time payments. You can also receive a 0.25 percentage point discount on your interest rate by setting up autopay, as well as a 2% reduction of your principal balance after graduating.
Custom Choice doesn’t charge application, origination, prepayment, or late fees. It also lets you pause payments through forbearance if you qualify for its natural disaster or unemployment protection programs.
- Interest rates: Fixed or variable
- Minimum credit score: Not disclosed
- Loan terms: 7, 10, or 15 years
- Repayment options: Immediate payments, interest-only payments, flat payments of $25 per month, or deferred payments until 6 months after graduation
- Loan amounts: $1,000 to $99,999 per year (lifetime limit of $180,000)
- Loan types: Undergraduate and graduate
- Eligibility: Must be a U.S. citizen or permanent resident at an eligible institution. You must also meet Custom Choice’s underwriting criteria for income and credit, or apply with a cosigner who does. Eligible noncitizens (DACA residents) can also qualify by applying with a cosigner who’s a U.S. citizen or permanent resident.
Pros:
- 2% reduction of your principal balance upon graduation
- 0.25 percentage point discount on interest rate for autopay
- No fees — not even late fees
- Available to DACA students with an eligible cosigner
- Option to check your rates through online prequalification
Cons:
- No loan options for parents or international students
- Only three loan term options of 7, 10, or 15 years
- Minimum income and credit score requirements not disclosed
Sallie Mae
Sallie Mae offers the Smart Option Student Loan to undergraduate and graduate students. You can borrow up to your school-certified cost of attendance and apply just once annually to get the funds you need for the entire academic year. Plus, it may be easy to get reapproved for your future years of study — undergraduates have a 97% approval rate when they return to Sallie Mae with a cosigner.
Sallie Mae doesn’t charge origination or prepayment fees, so you can pay off your loan ahead of schedule without penalty. This lender also offers a 0.25 percentage point interest rate reduction when you set up automatic payments on your student loans.
Through Sallie Mae, you can find a variety of loans designed for specific needs, including loans for Master of Business Administration (MBA) programs, law school, bar study, medical school, medical residency, dental programs, dental residency, and other health profession programs. However, this lender no longer offers a career training loan.
- Interest rates: Fixed or variable
- Minimum credit score: Not disclosed
- Loan terms: 10 to 15 years for Smart Option Student Loan; up to 15 years for law school and bar study loans; up to 20 years for medical school, medical residency, dental school, dental residency, and health professions loans
- Repayment options: Immediate repayment, interest-only payments, flat payments of $25 per month, in-school deferment
- Loan amounts: $1,000 up to school-certified cost of attendance
- Loan types: Undergraduate, graduate, MBA, medical school, medical residency, dental school, dental residency, law school, bar study, health professions
- Eligibility: Must be a U.S. citizen or permanent resident enrolled in an eligible program. Noncitizens may qualify by applying with a cosigner who’s a U.S. citizen or permanent resident.
Pros:
- Can borrow up to school-certified cost of attendance
- No prepayment or origination fees
- Loans available to noncitizens with an eligible cosigner
- Cosigner release after 12 on-time payments
Cons:
- No parent loan options
- No option to check your rates through prequalification
- Loan terms not disclosed until after you apply
- Relatively long loan terms
MEFA
- Minimum income requirement: $24,000
- Minimum credit score: 670
- Loan terms: 10 or 15 years
- Key requirements: Must apply for a new loan each school year
Other lenders to consider
The following two lenders are not Credible partners.
LendKey
- Minimum income requirement: Not disclosed
- Minimum credit score: 700
- Loan terms: 10 years
- Key requirements: Apply at least one month prior to when your school requires payment
Discover
- Minimum income requirement: Verifiable income sufficient to support your debts
- Minimum credit score: Not disclosed
- Loan terms: 10 or 20 years
- Key requirements: Must be making satisfactory academic progress as defined by your school.
Methodology
To find the “best companies,” Credible looked at loan and lender data points from 10 categories to give you a well-rounded perspective on each lender. Here’s what we considered:
- Interest rates
- Repayment terms
- Repayment options
- Fees
- Discounts
- Customer service availability
- Eligibility criteria
- Cosigner release options
- Whether the minimum credit score is available publicly
- Whether consumers could request rates with a soft credit check
Why to prioritize federal loans over private
Generally, federal student loans offer lower interest rates than private student loans. Additionally, they offer federal protections such as repayment plans, forbearance, deferment, and student loan forgiveness programs.
| Type | Federal | Private |
|---|---|---|
| Lowest APR | 4.99% | 4.49% for fixed, 3.65% for variable |
| Terms | 10 years for Standard Repayment Plans, 10 to 30 for consolidation loans | 5 to 25 years |
| Repayment protections | Deferment and forbearance, income-driven repayment plans, student loan forgiveness programs | Varies |
| Fees | 1.059% to 4.228% | Varies |
| Limits | Dependent undergraduates: $31,000 Independent undergraduates: $57,500 Graduates: $20,500 (unsubsidized) | Varies, typically covers total cost of attendance |
For example, if you can qualify for a private loan with a variable rate APR of 4.00%, it still might behoove you to borrow the federal loan at a fixed rate of 4.99%. Let’s say you borrow $10,000 with a repayment term of 10 years. The private loan APR of 4.00% would cost you $2,149 in total interest, with a total payment of $12,149. The federal student loan APR of 4.99% would cost you $2,722 in total interest, with a total payment of $12,722.
While it may seem like the private loan costs you less, the variable rate could rise as market conditions fluctuate, changing your monthly payment and increasing the total interest paid over the life of the loan.
Additionally, federal loans come with protections designed to offer borrowers more ease and flexibility, should the need arise. You may be able to take advantage of options like an income-driven repayment plan which can possibly lower your monthly payment depending on your situation, or forbearance or deferment, which allows you to pause payments if you’re going through financial hardship. You may also be eligible for student loan forgiveness programs.
How to choose a low-interest private student loan
When choosing a student loan, it’s important to understand how to qualify for the best interest rates. Your credit score and debt-to-income (DTI) ratio are both important factors that impact the types of loans and terms you qualify for.
Your DTI ratio represents how much of your monthly income goes to paying off debt and the lower this ratio is, the more likely you’ll be able to afford loan payments. This makes you less risky to lenders and gives you a better chance of qualifying for lower interest rates. Having a high credit score can also help you qualify for lower interest rates.
| Tip: When shopping for a low-interest student loan, make sure to take fees and loan terms into account. |
Compare offers from multiple lenders
It’s a good idea to compare offers from multiple lenders. Consider the interest rate, loan term, and fees before you make any final decisions about which lender to borrow from.
You can start by filling out the Free Application for Federal Student Aid (FAFSA) to learn what federal student loans you qualify for. From there, determine if you still need to apply for private loans to cover any gaps in funding.
Review interest rates and terms
When comparing different lenders, review interest rates and repayment terms, and monthly payments to help you decide which loan or loans can meet your needs. Generally, you want to look for a lower interest rate so you can spend less over the life of the loan.
| For example: If you take out a $20,000 loan with a loan term of 10 years and an 18.00% interest rate, you’ll pay over $23,244 in total interest, with an overall total payment of $43,244. With those same terms and a lower interest rate of 8.00%, you’ll only pay $9,119 in total interest with a total payment of $29,119. |
Consider repayment options and fees
Fees can add up, so don’t forget to look at the overall cost of borrowing money including interest rates, fees, and potential penalties. You will also want to make sure the repayment terms work for you. For example, some lenders include a prepayment penalty if you pay off your loan early.
How to improve your chances of receiving a low private loan interest rate
To improve your chances of receiving a low-interest student loan, it’s important to improve your credit score and lower your DTI ratio. Luckily, you can do both by making progress on other sources of debt. Making on-time debt payments can improve your credit score and help you lower your DTI.
Can you get a low-interest private loan with a cosigner?
If you’re struggling to qualify for a low-interest student loan, you can apply with lenders that allow cosigners. Adding a cosigner can help reduce the rate as long as the cosigner has good credit and meets the eligibility requirements. But remember that your cosigner will be responsible for the loan if you can’t make your payments.
Frequently asked questions
Here are some common questions about low-interest student loans:
If you have bad credit, can you get low-interest student loans?
Yes, most federal student loans (PLUS loans are the exception) don’t take your credit score into account and tend to have lower interest rates than private student loans. You may still be able to qualify for a private loan if you have bad credit, but you may have a higher interest rate.
Which is better: a fixed or variable interest rate?
Here is the difference between a fixed and variable rate:
- A fixed rate never changes, so your monthly payment stays the same over the life of your loan.
- A variable rate fluctuates, making it hard to predict what your monthly payments will be.
Is it possible to get a lower student loan interest rate in the future?
Yes, you can refinance your student loans in the future and if you improve your credit score, you may be able to qualify for a lower interest rate.
Can you negotiate a lower rate on private student loans?
Yes, it’s possible to negotiate private student loan rates, but it isn’t a guarantee these negotiations will be successful.