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The average interest rate on refinanced student loans increased last week. For many borrowers, rates remain low enough to make refinancing a good option.
The average fixed interest rate on a 10-year refinance loan was 3.45% from October 4 to 8. 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 2.57% 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 rose 0.09% to 3.45%. The average stood at 3.36% the week before.
Because fixed interest rates remain stable throughout 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 at the same time last year. The average fixed rate on a 10-year refinance loan at this time last year was 4.13%, 0.68% 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 $ 3,676 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year refinancing loans fell last week to 2.57% on average from 2.65%.
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 level at which the rate can go – 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 2.57%, you would pay around $ 356 on average per month. In total interest over the life of the loan, you would pay approximately $ 1,334. Of course, since the interest rate is variable, it can go up or down from month to month.
Related: Should You Refinance Student Loans?
When Should You Refinance Student Loans?
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit rating and stable income in order to access the lowest interest rates.
If you don’t yet have enough credit or income to qualify, you can either wait and refinance later or go with 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.
Before choosing to refinance, calculate your potential savings. It is important to make sure that you are saving enough to justify refinancing. Shop with several lenders for rates and take your credit score into account when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.
Refinancing student loans: other things to consider
There are a few things to keep in mind when refinancing a federal student loan into a private student loan. For starters, you will lose access to some of the benefits offered by federal student loans. For example, you will no longer have access to income-based repayment plans or deferral and forbearance options.
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.
Compare Student Loan Refinance Rates
One of the big goals of refinancing student loans, for many borrowers, is to reduce the amount of interest paid. And that means getting the lowest possible interest rate.
Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to interest rate increases. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Nonetheless, if you like the reliability of a fixed payment, then fixed rate loans might be a better choice.
When considering your options, compare the rates of several student loan refinance lenders to make sure you don’t run out of potential savings. Find out if you qualify for additional interest rate reductions, possibly by choosing automatic payments or by having an existing financial account with a lender.