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Rates for refinanced student loans jumped last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.
From April 18 to April 22, the average fixed interest rate on a 10-year refinance loan was 4.57% 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 3.31% 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 0.39% to 4.57%. The average was 4.18% the previous week.
Because fixed interest rates stay the same for the duration of a borrower’s loan, it’s possible to lock in a rate that’s significantly lower than what you would have received this time last year. The average fixed rate on a 10-year refinance loan this time last year was 3.71%, 0.86% lower than the current rate.
Let’s say you refinanced $20,000 in student loans at today’s average fixed rate. You’d pay about $208 a month and about $4,954 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 fell 0.15% last week to 3.31%.
Variable interest rates fluctuate over the term of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable rate loans, but they usually limit how high the rate is – lenders can set a limit of 18%, for example.
Let’s say you refinanced an existing $20,000 loan into a five-year loan with a variable interest rate of 3.31%. You would pay around $362 on average per month. You would pay approximately $1,728 in total interest over the life of the loan. Keep in mind that since interest is variable, it can fluctuate up or down from month to month.
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 you don’t yet have enough credit or income to qualify, you can either wait and refinance later or use a co-signer. The co-signer you choose should know that they will be responsible for making student loan payments if you can’t and that the loan will show up on their credit report.
Before choosing to refinance, calculate your potential savings. It’s important to make sure you’ll save enough to justify refinancing. Shop around with multiple lenders for rates and consider your credit score when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.
Refinancing of federal loans into private loans
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 rates usually start low, but could go up in the future, making it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra when possible so that you are not subject to any rate increases in the future.
Whether you choose a fixed or variable rate loan, it’s important to compare rates from multiple lenders to make sure you don’t miss out on any savings. You may qualify for interest rate discounts by opting in to automatic payments or having an existing relationship with a lender.