Student loan rates by credit score

Student Loan Rates and Your Credit Score

 

If you are getting ready to go to college, then you are likely considering using student loans to cover either the cost entirely or partially. There are, essentially, two different kinds of loans you can use to pay for your tuition. The first is a loan provided by the government, and you likely refer to this as financial aid. Financial aid is based more on you and your parents’ income rather than your credit score. However, if you plan on applying for private loans, then your credit score will be used to determine the interest rate.

Though these private loans are typically taken out in the name of the student, it is common for students to lack a credit score. In this case, parents help to supplement the lack of credit history by becoming a co-signer. This action requires their credit score to be used to determine the rate. Co-signers with higher scores are more likely to be approved and less likely to pay higher rates.

 

What is a Good Credit Score for Student Loans?

 

Because the interest rates for private student loans are dependent on credit scores, it is essential to know what is considered a good credit score and how it can affect your interest rate. Usually, any score of about 720 is considered good and will result in a more favorable interest rate. Other factors that can influence the rate include the type of loan that you are applying for, your age, and your previous credit history.

What are student loan rates by credit score?

According to data we gathered from several student loan providers and servicers, including well-known names like Sallie Mae and Credible, we found the lowest APR offered, based on a certain credit score band.

Credit score range Median starting APR (fixed-rate)
Very good to excellent credit (750+).
2.79%
Good credit (670-749)
3.39%
Fair credit (580-669)
4.25%
Poor credit (<580)
4.74%*

*This will vary substantially because a bad credit score can be as low as 300.

These rates are based on a loan amount of $28,000, with terms from 5-15 years, assuming a $50,000 annual income, and intended for undergraduate students, with the use of a co-signer.

There are different credit rating models, thus if your credit is considered “good” will also depend on what score model is used by a certain lender: here we assume the FICO score as reference because it is the most widely used by student loan providers.


Can I lower my interest rate on my student loan?

There are a few ways to ensure that you are getting the lowest possible rate. Of course, your credit score is the strongest determinant of your interest rate. However, there are ways to keep the interest on your loan as low as possible.

The first is an auto-pay discount. Many loans offer a discount for those who set up automatic payments to pay off their loan. This can result in a discount of up to 0.25%. Additionally, students or their parents may opt to pay interest on the loan while their sons are attending school. The keeps the premium lower, resulting in less accrued interest over the life of the loan.


How much does a Typical Student Loan Cost?

The cost of a student loan can differ significantly depending on many different factors. First, there is the credit score that was used when you were applying for the loan. This can greatly impact the amount of interest that is paid back over the course of the loan. Interest rates for private student loans can go anywhere from 1.04% to 12.99%.

Another factor that affects the cost of the loan is the term. The term refers to how the length of time chosen to pay off the loan, and this can range anywhere from 60 to 180 months.

Check our selection of student loan providers to find the best offers for your situation.