Skip to content

3 Ways To Counteract Increasing Student Loan Interest Rates

Congress is raising the rates on federal student loans again, and this time it looks like Obama won’t be able to stop it by hanging out with Jimmy Fallon. Libby Nelson wrote a great overview of the situation on Vox, which I’d recommend checking out.

The upshot, though, is that rates are going to rise. We will indeed see the 6.8% rate on undergrad loans – though the rate will rise gradually, hitting that point in 2018. For the July 2014 – July 2015 school year, the rate for undergrad loans will jump from the current 3.86% to 5.09%.

The Consumer Financial Protection Bureau estimated that monthly payments will rise around $3/month with these new rates, resulting in a total increase of $355-$380 over ten years. That’s for every $5,000 a student owes – and the average student graduates owing quite a bit more.

Assuming you borrowed the maximum $27,000 as an undergrad, this rate hike would increase your payment an estimated $1,917 over ten years.

So, how do you counteract this?

Well, let’s think about it. Interest rates are only one component of a loan. There are actually three components, and each factors into how much you’ll end up repaying. They are:

  1. Principal balance
  2. Interest rate
  3. Rate of repayment

#1 and #2 are directly correlated with your total repayment, while #3 is inversely correlated with it.

So, if #2 (interest rate) is going up and there’s nothing you can do about it, what are you to do?

Either lower #1, or speed up #3.

Today I want to look at three tactics for speeding up #3 – AKA graduating sooner.

Keep an Accurate Graduation Plan

According the The Chronicle of Higher Education’s college completion data, 56% of students graduate college within six years. However, only 31% actually finish within four.

Why do so many students take longer than four years to graduate? There are a lot of factors that I’ve seen personally:

  • Changing majors
  • Failing (and having to retake) required courses
  • Not knowing class requirements and scheduling efficiently

These factors, and others, have one thing in common: they keep you in school longer than you need to be. And that means extra debt.

Needing to change majors can be a legitimate reason for staying longer, though you can mitigate the risk of picking the wrong major by setting deliberate goals, and possibly even taking a gap year before going to college if you aren’t sure what you want to do.

Mitigating the risk the second factor poses is pretty straightforward; work hard and don’t fail classes. Sometime it happens, but I won’t pull punches here: most of the people I know who have failed classes did so because they were lazy. Don’t be. Hustle.

It’s the third factor I listed that I want to focus on here. Now, I know you’ve probably got an academic adviser who’s helped you pick your classes and plan out your path through school. That’s all well and good.

But it isn’t enough.

I say it’s up to you to know precisely what classes you need to take and when. There are several reasons I say this:

  • It’s your job to schedule your classes each semester
  • You’ll probably drop classes that suck, get interested in new things, and generally muck up your plan
  • Your adviser has hundreds of other students to deal with

Here’s a look at the Excel spreadsheet I created during my freshman year to track my graduation plan:

Graduation Plan

This graduation plan looked very different when I created it, but I kept it constantly updated and accurate to reflect my current progress and plans.

I also made sure it always synced up with the requirements for my major. I kept copies of the documents from the advising office that spelled out these requirements so I could always check them over when tweaking my schedule.

Keeping an accurate plan like this will increase the likelihood that you’ll catch planning mistakes and other things – like classes not being offered the semester you planned to take them – before they delay your graduation. So do it!

Test Out of Required Classes

Last semester, my roommate Martin was being a total whiny baby and spouting near incomprehensible complaints in between bouts of blubbering eye-firehosing and nervous breakdowns.

My superhuman hearing caught the gist, though. It was something like,

“Wahhh! I already have an associate degree in computer networking, so I shouldn’t have to take my major’s required networking class! Also I pooped my pants!” – definitely what Martin said

Anyway, the school apparently let him test out of the that class and skip it so he could take naps or whatever.

As it turns out, you can actually test out of a lot of college courses if you’re already knowledgable on their subject matter.

The CLEP program offers 33 different exams, and the credit they give for passing is accepted at over 2,900 different universities. Odds are that yours is one of them.

CLEP isn’t the only program available for testing out, either. There are several others – and even without them, you might be able to test out of classes you don’t need. Just talk to the professor and let them know your situation. Martin told me the test he took was just created by the professor and accepted by the university.

To learn more about this option, check out this excellent post on testing out over on Art of Manliness.

Also, having this strategy available to you means you’ve got even more reason to start learning outside of class.

Double Dip

Fun Dip
Photo: Fun Dip via Timothy Tolle, CC-BY 2.0.

Here’s another simple way you can reduce the amount of time (and thus, money) you’re required to spend in college:

Find classes that “double dip” on requirements.

My major required me to take lots of extra “gen-ed” classes, and had credit requirements in several categories, like:

  • Natural Science
  • Social Science
  • Humanities
  • International Perspectives
  • Raccoon Hunting

Ok, maybe that last one was a joke but I will become the world’s most deadly raccoon hunter – FEAR ME RACCOONS

Anyway, I was able to find several classes that actually counted for more than one of these requirements. I found a sexuality course that counted for both Social Science and Humanities, as well as a religion course that counted for Humanities and International Perspectives.

You can bet that I took all the double dip courses I could, as I had better things to do with my time than take a zillion gen-eds. (plus, I generally prefer books)

Go through your own school’s list of requirements and see if you can find double dip courses as well. You can also find Facebook groups of other students who might be able to point you in the right direction.


Now that you’re armed with these tactics, go graduate a little sooner and save your wallet.

If you’ve made it this far, I also recommend reading The True Cost of Student Loans.

Featured image via Quentin Matsys, though since he’s been dead for 485 years, I don’t think he’ll care that I attributed him.