May 23, 2022—Lending Rates Rise – Forbes Advisor

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Rates for 10-year fixed-rate private student loans jumped last week. Despite the rise, if you want to get a private student loan, you can still get a relatively low rate.

From May 16 to May 20, the average fixed interest rate on a 10-year private student loan was 6.42% for borrowers with a credit score of 720 or higher who prequalified in the student loan market from Credible.com. On a five-year variable-rate loan, the average interest rate was 4.15% among the same population, according to Credible.com.

Related: Best Private Student Loans

Fixed rate loans

Last week, the average fixed rate on a 10-year loan rose from 0.86% to 6.42%. The average was 5.56% the previous week.

Borrowers looking for a private student loan can now qualify for a higher rate than they would have at this time last year. At this time last year, the average fixed rate on a 10-year loan was 5.99%, 0.43% lower than the current rate.

Let’s say you funded $20,000 in student loans at today’s average fixed rate. You’d pay about $226 a month and about $7,154 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

Average variable rates on five-year loans fell 0.19% last week to 4.15%.

Unlike fixed rates, variable interest rates fluctuate over the term of the loan. Variable rates can start lower than fixed rates, especially during times when rates are generally low, but they can increase over time.

Private lenders often offer borrowers the option of choosing between fixed and variable interest rates. Fixed rates may be the safest bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose a variable loan.

If you were to finance a $20,000 loan over five years at a variable interest rate of 4.15%, you would pay around $370 on average per month. In total interest over the term of the loan, you would pay approximately $2,181. Of course, since the interest rate is variable, it can fluctuate up or down from month to month.

Related: How to get a private student loan

The price you will receive

The rate you receive varies depending on whether you get a fixed or variable loan. Rates are partly based on your creditworthiness – those with higher credit scores often get the lowest rates. But your rate is also based on other factors. Credit history, income, and even the degree you’re working on and your career can all play a part.

How to get a private student loan

Private student loans may be a good option if you reach the annual borrowing limits for federal student loans or do not qualify. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll have more liberal repayment and forgiveness options than with a private loan. For example, the federal student loan interest rate for undergraduates is 3.73% for the 2021-22 school year.

Obtaining a private student loan usually involves applying directly through a non-federal lender, such as a bank, credit union, or online entity. You may also be able to obtain a private student loan through a nonprofit organization, state agency, or college.

It is important to note that you will need a qualified co-signer if you have a limited credit history, as undergraduate students often do.

When applying for a private student loan, consider the following:

  • Your qualities. Private student loans are credit-based. Lenders typically require a credit score above 600. This is where having a co-signer can be particularly beneficial.
  • Where to apply. You can apply directly on the lender’s website, by mail or by phone.
  • Your choices. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fees and late fees. Also check to see if the lender offers a co-signer release so that the co-borrower can potentially opt out of the loan.

Shop for Private Student Loans

First, look at the overall cost of the loan. Consider both the interest rate and the fees. Also, look at the type of help each lender offers if you are unable to pay your payments.

If you have good or excellent credit, you are more likely to get the best interest rates.

How much should you borrow? Experts generally recommend not borrowing more than you will earn in your first year out of college. How much can you borrow? Some lenders cap the amount you can borrow each year, while others don’t. When shopping for a loan, let lenders know how the loan is disbursed and what costs it will cover.

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