December 6, 2021 — Loan Rates Rise – Forbes Advisor

Refinanced student loan rates jumped last week. If you want to refinance your student loans, you can still get a relatively low rate.

The average fixed interest rate on a 10-year refinance loan was 3.40% from November 29 to December 3. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market. The average interest rate on a five-year variable rate loan was 2.49% among the same population, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

Last week, the average fixed rate on a 10-year refinance loan jumped 0.05% to 3.40%. The average stood at 3.35% the week before.

Because fixed interest rates stay the same for the life of a borrower’s loan, it is possible to lock in a rate that is significantly lower than what you would have received around the same time last year. The average fixed rate on a 10-year refinance loan at this time last year was 3.93%, or 0.53% higher than the current rate.

Let’s say you refinanced $ 20,000 in student loans at today’s average fixed rate. You would pay about $ 197 per month and about $ 3,620 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

The average five-year variable student refinance loan rate rose 0.08% last week. Now it sits at 2.49%.

Variable interest rates fluctuate over the life of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate the rates monthly for borrowers with variable rate loans, but they usually limit the level at which the rate can go – lenders can set a limit of 18%, for example.

Let’s say you refinanced an existing $ 20,000 loan into a five-year loan with a variable interest rate of 2.49%. You would pay around $ 355 on average per month. You would pay approximately $ 1,292 in total interest over the life of the loan. Keep in mind that since interest is variable, it can go up or down from month to month.

Related: Should You Refinance Student Loans?

When Should You Refinance Student Loans?

Lenders generally require that you graduate before you refinance. While it is possible to find a lender without this requirement, in most cases you will want to wait to refinance until you have graduated.

Keep in mind that to get the lowest interest rates you will need a good or great credit score.

Using a co-signer is an option for those who do not have enough credit or income to qualify for a refinance loan. Alternatively, you can wait until your credit and income are stronger. If you do decide to use a co-signer, make sure they are aware that they will be responsible for the payments if you are unable to do so for some reason. The loan will also appear on their credit report.

Before choosing to refinance, calculate your potential savings. It is important to make sure that you are saving enough to justify refinancing. Shop with several lenders for rates and take your credit score into account when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.

Other features of student loan refinancing to consider

There are a few things to keep in mind when refinancing a federal student loan into a private student loan. For starters, you will lose access to some of the benefits offered by federal student loans. For example, you will no longer have access to income-based repayment plans or deferral and forbearance options.

If you are considering refinancing federal student loans, first make sure that you probably won’t need to use any of these programs. This can be the case if your income is stable and you plan to pay off a refinance loan quickly. You still have the option of refinancing only your private loans, or only a portion of your federal loans. Since fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not result in substantial savings.

Get the best rates

Refinancing a student loan at the lowest possible interest rate is one of the best ways to reduce the amount of interest you will pay over the life of the loan.

You may find that variable rate loans start off lower than fixed rate loans. But because they are variable, they have the potential to increase in the future.

Fortunately, you can reduce your risk by paying off your new refinance loan quickly, or at least as quickly as possible. Start by choosing a short loan term but with a manageable payment. Then pay extra whenever you can. This can hedge your risk against possible rate increases.

Whether you choose a fixed or variable rate loan, it’s important to compare the rates of multiple lenders to make sure you don’t miss out on any savings. You may be able to benefit from interest rate reductions by opting for automatic payments or having an existing relationship with a lender.