November 22, 2021 — Slightly Rising Loan Rate – Forbes Advisor
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Last week, the average interest rate on refinanced student loans increased. Rates remain low enough that many borrowers justify refinancing their student loans.
The average fixed interest rate on a 10-year refinance loan was 3.44% from November 15 to 19. 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 2.53% 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 0.02% to 3.44%. The average stood at 3.42% the week before.
Since fixed interest rates do not change over 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 3.94%, 0.50% 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 $ 3,665 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Last week, the average rate on a five-year variable refinancing student loan fell to 2.53% on average from 2.61%.
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 interest rate to anything until lenders can set a limit of 18%, for example.
If you were to refinance an existing $ 20,000 loan into a five-year loan at a variable interest rate of 2.53%, you would pay around $ 355 on average per month. In total interest over the life of the loan, you would pay approximately $ 1,313. Of course, since the interest rate is variable, it can go up or down from month to month.
Related: Should You Refinance Student Loans?
The Right Time to 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 excellent credit score.
If you don’t yet have enough credit or income to qualify, you can either wait and refinance later or use a co-signer. The co-signer you choose should know that they will be responsible for making the student loan repayments if you can’t anymore and that the loan will show up 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. First, explore the rates at which you could prequalify through multiple lenders, then calculate your potential savings.
Fixed rate loans vs variable rate loans
For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.
While variable rates may start out low, they could go up in the future, which makes it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra when possible so that you are not subject to possible rate increases in the future.
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.
Refinancing student loans: other things to consider
When you refinance federal student loans into a private loan, you lose access to some of the benefits of federal loans. You will no longer have access to features such as:
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.