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Last week, the average interest rate on refinanced student loans fell. Borrowers interested in refinancing their student loans can still benefit from relatively low interest rates.
The average fixed interest rate on a 10-year refinance loan was 3.49% from September 13 to 17. 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 2.95% among the same population, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Fixed rate loans
Last week, the average fixed rate on 10-year refinance loans fell 0.01% to 3.49%. The previous week, the average was 3.50%.
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 at the same time last year. The average fixed rate on a 10-year refinance loan at this time last year was 4.12%, 0.63% higher than the current rate.
A borrower who refinances $ 20,000 in student loans at the current average fixed rate would pay about $ 198 per month and about $ 3,721 in total interest over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Last week, the average rate on a five-year variable refinancing student loan fell to 2.95% on average from 3.07%.
Unlike fixed rates, variable interest rates fluctuate over the life of a loan depending on market conditions and the index to which they are linked. Many refinance lenders recalculate the rates monthly for borrowers with variable rate loans, but they usually limit the rate up to 18%, for example.
Refinancing an existing $ 20,000 loan into a five-year loan at an interest rate of 2.95% would result in a monthly payment of approximately $ 359. A borrower would pay $ 1,536 in total interest over the life of the loan. But because the rate in this example is variable, it may go up or down from month to month during this time period.
Related: Should You Refinance Student Loans?
When Should You Refinance Student Loans?
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.
If your credit is low or your income is not high enough to qualify, you have several options. You can wait to refinance until you have accumulated credit or have sufficient income. Or, you can get a co-signer. Just make sure the co-signer knows that if you can’t pay off your student loan, they’ll be responsible for it. The loan will appear on their credit report.
Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with not very good credit and who will not receive the lowest fixed or variable interest rates may not be. Start by exploring the rates at which you could prequalify through multiple lenders, then calculate your potential savings.
Refinancing student loans: other things to consider
A crucial caveat to keep in mind is that refinancing federal student loans into a private loan means that you will lose many of the benefits of federal loans, such as income-based repayment plans and generous loan options. postponement and abstention.
You may not need these programs if you have a stable income and plan to pay off your loan quickly. But make sure you won’t need these programs if you’re thinking about refinancing federal student loans.
If you need the benefits of these programs, you can refinance only your private loans or only a portion of your federal loans.
Compare Student Loan Refinance 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-term loan 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 several 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.
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