Student loan refinancing rates are dropping to their lowest level in over a year for many borrowers. So, is it time for you to refinance your loans?

Student loan refinancing interest rates drop to their lowest in more than a year, according to data for the week starting Sept. 27 from Credible, which examined borrowers with credit scores of 720 and above in their market. Interest rates on 10-year fixed rate loans fell to 3.36% and on 5-year floating rate loans to 2.65%. Of course, the rate you actually qualify for depends on a variety of factors, including your credit rating, debt level, and income. For some very creditworthy borrowers, some rates start at around 1.8%, but others will pay more than average for refi.

Here are the rates for the past five weeks for borrowers with a higher credit rating:

Who should and who should not refinance their student loans?

The first big question to ask yourself when considering a refi is whether it will save you money – either by lowering your interest rate or shortening the repayment term, or both, says Mark Kantrowitz, student loan expert and author of How to Appeal for More College. Financial aid. Those who have seen their incomes rise, their credit scores improve, or who have paid off large debts may be able to get much better rates than they do today. This calculator can help you determine how much you would save by refinancing. Note that while a shorter repayment term can result in higher monthly payments, it can easily save you thousands in interest. In addition, “the shorter the repayment term, the lower the interest rate. This is because lenders consider the likelihood that interest rates will start to rise over time, ”Kantrowitz explains.

The other thing you need to consider is the type of loans you have, says Kantrowitz. Those with federal loans should proceed with caution when refinancing a private student loan. First, you’re likely currently benefiting from the federal government’s moratorium on interest-free student loan payments, which runs until January 2022.

And even after the end, it may still be a good idea to skip refinancing as it would “permanently strip federal loans of their potentially useful collateral, such as access to income-driven repayment plans, deferral programs, and debt relief. forbearance as well as current and potentially future loans. forgiveness programs, ”says Andrew Pentis, Certified Student Loan Advisor and Debt Expert at StudentLoanHero. Rebecca Safier, Certified Student Loan Advisor and Debt Expert at Student Loan Hero, adds Rebecca Safier: “Make sure you have taken into account everything you are going to give up before finalizing the transaction. The federal government offers you protections that your new private lender will not.

Also see: 5 questions to ask yourself before refinancing a student loan.

Should I opt for a fixed rate or a variable rate loan?

While the lowest rates, to begin with, are often variable rate loans, fixed rate loans may be a safer choice in the long term. If you refinance your loan at a variable interest rate, your monthly payment can go up or down – and while it could go down, which would mean a smaller monthly payment, it can also go up and exceed what you would pay on a. fixed rate. -interest rate. Since fixed rate loans often have very low rates right now, those who expect to hold on to their loan for a bit will likely benefit from opting for a fixed rate loan.

How much can I save by refinancing my student loans?

The amount that can be saved by refinancing student loans varies, but it is not uncommon for borrowers to save thousands of dollars over the life of their loan. According to data from New America, the average student borrower has about $ 39,350 in loans outstanding and an average interest of 5.8%. If a borrower in this scenario had a 10-year loan but refinanced at the same term at 3.8%, they would save about $ 4,600 over the life of the loan. If the same person reduced their loan term to 5 years, it would save about $ 8,600 in savings. This free calculator can help you determine how much you can save.

One mistake Kantrowitz says people make when trying to value their savings is that they mistakenly believe that cutting their interest rate in half will cut their monthly payment in half. “In fact, it reduces the payment by just 10-20%, depending on the repayment term, because the bulk of the payment goes to principal, not interest,” Kantrowitz explains.

Other things to consider when considering refinancing your student loans

While mortgage refinancing costs can be high, student loan refinancing usually doesn’t come at a high cost. That said, watch out for origination fees, application fees, prepayment penalties, late fees, and recovery of fees on overdue loans.

Increase your credit score as much as possible in order to get the best rates. To ensure a higher credit score, make sure you pay your bills on time, catch up on overdue accounts, pay off revolving account balances like credit cards, and limit how often you apply for new loans. .

If your credit score is low, some lenders allow you to apply with a co-signer. “Adding a creditworthy co-signer to your application can help you qualify and get better rates, but your co-signer becomes just as responsible for the loan,” says Safier.