Jhe average interest rate on private 10-year fixed-rate student loans increased last week. For borrowers looking for private loans to fill gaps to pay for higher education expenses, rates remain relatively low for borrowers with strong credit.
From March 21 to 25, the average fixed interest rate on a 10-year private student loan was 6.82% for borrowers with a credit score of 720 or higher who prequalified in the student loan market. Credible.com. On a five-year variable-rate loan, the average interest rate was 5.99% among the same population, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
Last week, the average fixed rate on a 10-year loan rose from 1.47% to 6.82%. The average was 5.35% the previous week.
Borrowers looking for a private student loan can now qualify for a higher rate than they would have at this time last year. At this time last year, the average fixed rate on a 10-year loan was 5.48%, 1.34% lower than the current rate.
If you were to fund $20,000 in student loans at today’s average fixed rate, you’d pay about $230 a month and about $7,644 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Last week, the average five-year variable student loan rate fell to 5.99% on average from 6.61%.
Unlike fixed rates, variable interest rates fluctuate over the term of the loan. Variable rates can start lower than fixed rates, especially during times when rates are generally low, but they can increase over time.
Private lenders often offer borrowers the option of choosing between fixed and variable interest rates. Fixed rates may be the safest bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose a variable loan.
Financing a private loan of $20,000 over five years at 5.99% would yield a monthly payment of approximately $387. A borrower would pay $3,194 in total interest over the life of the loan. Keep in mind that since the interest rate is variable, it could change monthly.
Related: How to get a private student loan
How to get a private student loan
Private student loans may be a good option if you reach the annual borrowing limits for federal student loans or do not qualify. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll have more liberal repayment and forgiveness options than with a private loan. For example, the federal student loan interest rate for undergraduates is 3.73% for the 2021-22 school year.
When shopping for a private student loan, you will usually need to apply directly with a non-federal lender. This includes banks, credit unions, nonprofits, state agencies, colleges, and online entities.
Keep in mind that undergraduate students with limited credit histories often need a co-signer who can meet the borrowing requirements of the lender.
When applying for a private student loan, consider the following:
- Your qualities. Private student loans are credit-based. Lenders typically require a credit score above 600. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, by mail or by phone.
- Your choices. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fees and late fees. Also check to see if the lender offers a co-signer release so that the co-borrower can potentially opt out of the loan.
Comparison of Private Student Loans
When comparing private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It’s also important to consider the type of help the lender offers if you can’t afford your payments.
If you have good or excellent credit, you are more likely to get the best interest rates.
Experts generally recommend that you don’t borrow more than you will earn in your first year of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, determine how the loan will be disbursed and what costs it will cover.
How lenders determine your rate
The rate you receive varies depending on whether you get a fixed or variable loan. Rates are partly based on your creditworthiness – those with higher credit scores often get the lowest rates. But your rate is also based on other factors. Credit history, income, and even the degree you’re working on and your career can all play a part.
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