January 24, 2022—Lending Rates Rise – Forbes Advisor
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Last week, the average interest rate on refinanced student loans rose. Rates remain low enough that many borrowers justify refinancing their student loans.
The average fixed interest rate on a 10-year refinance loan was 3.56% from January 17 to January 21. This is for borrowers with a credit score of 720 or higher who have prequalified in Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 3.41% 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 0.12% to 3.56%. The average was 3.44% the previous week.
This time last year, the average fixed rate on a 10-year refinance loan was 3.80%, or 0.24% higher than the current rate. This means borrowers who refinance now have the option of receiving a significantly lower rate than they would have received this time last year.
A borrower refinancing $20,000 in student loans at the current average fixed rate would pay about $198 per month and about $3,800 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year refinance loans rose last week from an average of 2.89% to 3.41%.
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 rates monthly for borrowers with variable rate loans, but they usually limit the height of the rate, to 18%, for example.
Refinancing an existing $20,000 loan to a five-year loan at 3.41% interest would yield a monthly payment of approximately $363. A borrower would pay $1,782 in total interest over the life of the loan. But since the rate in this example is variable, it can go up or down from month to month during this period.
Related: Should You Refinance Student Loans?
When to Refinance Student Loans
Most lenders require borrowers to graduate before refinancing, but not all do, 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 repay your student loan, they will be responsible. The loan will show up on their credit report.
Finally, make sure you can save enough money to justify refinancing. At current rates, most borrowers with high credit ratings can benefit from refinancing. But those with less than excellent credit who won’t receive the lowest fixed or variable interest rates may not be able to. Start by exploring the rates you could prequalify for through multiple lenders, then calculate your potential savings.
Refinancing Student Loans: What Else to Consider
When you refinance federal student loans to a private loan, you lose access to some federal loan benefits. 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 be sure you won’t need these programs if you plan to refinance 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.
What to Consider When Comparing Student Loan Refinance Rates
One of the primary goals of student loan refinancing, for many borrowers, is to reduce the amount of interest paid. And that means getting the lowest interest rate possible.
Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to increases in interest rates. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Still, if you like the reliability of a fixed payment, fixed rate loans might be a better choice.
When considering your options, compare rates from multiple student loan refinance lenders to ensure you don’t miss out on possible savings. Determine if you qualify for additional interest rate discounts, possibly by choosing automatic payments or having an existing financial account with a lender.