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Rates on refinanced student loans dropped last week. Despite the rise, if you’re interested in refinancing your student loans, you can still get a relatively low rate.
From March 20 to March 25, the average fixed interest rate on a 10-year refinance loan was 7.05% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. On a five-year variable-rate loan, the average interest rate was 6.70% among the same population, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Fixed-rate Loans
The average fixed rate on 10-year refinance loans last week dipped by 0.07% to 7.05%. The week prior, the average stood at 7.12%.
Because fixed interest rates remain the same throughout a borrower’s loan term, it’s possible to lock in a rate that’s considerably lower than you would have received at this time last year. The average fixed rate on a 10-year refinance loan at this time last year was 4.02%, or 3.03% 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 $233 per month and approximately $7,928 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 moved up last week, from 6.06% on average to 6.70%.
Variable interest rates fluctuate during a loan term according to the index they’re tied to and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—lenders may set a limit of 18%, for instance.
Refinancing an existing $20,000 loan to a five-year loan at 6.70% interest would yield a monthly payment of approximately $393. A borrower would pay $3,592 in total interest over the life of the loan. But since the rate in this example is variable, it could go up or down from month to month within that time frame.
Related: Should You Refinance Student Loans?
The Right Time To Refinance Student Loans
Lenders generally require you to complete your degree before refinancing. Though it’s possible to find a lender without this requirement, in most cases, you’ll want to wait to refinance until after you’ve graduated.
Keep in mind that to get the lowest interest rates, you’ll need a good or excellent credit score.
If your credit is lacking or your income isn’t high enough to qualify, you have a couple of options. You can wait to refinance until you’ve built credit or you have enough income. Or, you can get a co-signer. Just make sure that the co-signer knows that if you can’t make student loan payments, they’ll be responsible. The loan will appear on their credit report.
Before you choose to refinance, calculate your potential savings. It’s important to make sure you’ll save enough to justify refinancing. Shop at multiple lenders for rates and take your credit score into consideration when shopping around. Keep in mind that those with the highest credit scores receive the lowest rates.
Fixed-rate Loans vs. Variable-rate Loans
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.
When considering your options, compare rates across multiple student loan refinancing lenders to ensure you’re not missing out on possible savings. Explore whether you qualify for additional interest rate discounts, potentially by choosing automatic payments or by having an existing financial account with a lender.
Refinancing Federal Loans to Private Loans
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.
If you’re thinking about refinancing federal student loans, first make sure you likely won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You always have the option to refinance only your private loans, or only a portion of your federal loans. Since federal loans’ fixed interest rates are typically quite low, you may also decide refinancing wouldn’t lead to substantial savings.
