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Refinanced student loan rates increased last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.
For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan market from February 14 to February 18, the average fixed interest rate on a 10-year refinance loan was 3.75%. On a five-year variable rate loan, the rate was 3.10%, 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 jumped 0.04% to 3.75%. The average was 3.71% the previous week.
Fixed interest rates will not fluctuate over the term of a borrower’s loan. This allows borrowers refinancing now to lock in a significantly lower rate than they would have received this time last year. This time last year, the average fixed rate on a 10-year refinance loan was 3.72%, 0.03% lower than the current rate.
If you were to refinance $20,000 in student loans at today’s average fixed rate, you’d pay about $200 per month and about $4,015 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
The average five-year variable student refinance loan rate rose 0.32% last week. It is now at 3.10%.
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.
If you were to refinance an existing $20,000 loan into a five-year loan at a variable interest rate of 3.10%, you would pay around $360 on average per month. In total interest over the term of the loan, you would pay approximately $1,616. Of course, since the interest rate is variable, it can fluctuate up or down from month to month.
Related: Should You Refinance Student Loans?
Student Loan Refinance Rate Comparison
For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.
While variable rates may start low, they could rise 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.
When considering your options, compare rates from multiple student loan refinance lenders to ensure you don’t miss out on possible savings. Determine if you qualify for additional interest rate reductions, possibly by choosing automatic payments or having an existing financial account with a lender.
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’ll also need a good or excellent credit score and a stable income to access the lowest interest rates.
If your credit is failing or your income is not high enough to qualify, you have several options. You can wait to refinance until you have accumulated credit or have sufficient income. Or, you can get a co-signer. Just make sure the cosigner knows they’ll be responsible if you can’t repay your student loan. The loan will show up on their credit report.
It is important to make sure that you will save enough money when refinancing. While many borrowers with strong credit ratings could benefit from refinancing at today’s interest rates, those with weaker credit will not benefit from the lowest rates available.
Do the math to see if refinancing will benefit your situation. Shop around for rates, then calculate what you could save.
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. For starters, you will lose access to certain benefits offered by federal student loans. For example, you will no longer have access to income-tested repayment plans or deferment and forbearance options.
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.