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Rates on refinanced student loans rose last week. Despite the rise, if you’re interested in refinancing your student loans, you can still get a relatively low rate.
According to Credible.com, from January 16 to January 21, the average fixed interest rate on a 10-year refinance loan was 6.47%. It was 7.35% on a five-year variable-rate loan. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace.
Related: Best Student Loan Refinance Lenders
Fixed-rate Loans
The average fixed rate on 10-year refinance loans last week rose by 0.29% to 6.47%. The week prior, the average stood at 6.18%.
Fixed interest rates won’t fluctuate throughout a borrower’s loan term. That allows borrowers refinancing now to lock in a rate significantly lower than they would have received this time last year. At this time last year, the average fixed rate on a 10-year refinance loan was 3.56%, 2.91% lower than today’s rate.
If you were to refinance $20,000 in student loans to today’s average fixed rate, you’d pay around $227 per month and approximately $7,215 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-rate Loans
Last week, rates on variable five-year refinance student loans moved up, reaching 7.35% from 5.79% the week prior.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term according to market conditions and the index they’re tied to. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—to 18%, for instance.
Refinancing an existing $20,000 loan to a five-year loan at 7.35% interest would yield a monthly payment of approximately $399. A borrower would pay $3,960 in total interest over the life of the loan. But the rate in this example is variable, and it could move up or down each month.
Related: Should You Refinance Student Loans?
When Should You Refinance Student Loans?
Most lenders require borrowers to complete their degree before refinancing—though not all—so in most cases, wait to refinance until you’ve graduated. You’ll also need a good or excellent credit score and stable income in order to access the lowest interest rates.
If you don’t yet have strong enough credit or income to qualify, you can either wait and refinance later or use a co-signer. The co-signer you choose should be aware that they’ll be responsible for making student loan payments if you no longer can and that 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 less-than-great credit who won’t receive the lowest fixed or variable interest rates may not. First, explore rates you could prequalify for via multiple lenders, then calculate your potential savings.
Getting The Best Rates
Refinancing a student loan at the lowest possible interest rate is one of the best ways to reduce the amount of interest you’ll pay over the life of the loan.
While variable rates may start out low, they could rise in the future, making them a gamble. But one way to limit your risk exposure is to pay off your new refinance loan as fast as possible. Choose as short a loan term as you can manage, and pay extra when possible so that you’re not subject to potential rate increases in the future.
Refinancing Student Loans: What Else to Consider
There are a few things to keep in mind when refinancing a federal student loan into a private student loan. To begin, you’ll lose access to some benefits that federal student loans offer. For instance, you’ll no longer have access to income-driven repayment plans or deferment and forbearance options.
You may not need these programs if you have stable income and you plan to quickly pay off your loan. But make sure you won’t need these programs if you’re thinking about refinancing federal student loans.
If you do need the benefits of those programs, you could refinance only your private loans or just a portion of your federal loans.
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