Student loans

What are student loan refinance rates?

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It’s important to keep an eye on student loan refinance rates so you can know if you’ll save money on interest and lower your monthly payment. (Shutterstock)

Several Federal Reserve interest rate hike this year have pushed up student loan refinance rates.

While private student loan refinance providers typically set their own rates, they are based on market trends that rise and fall at different times. If you are looking to refinance your student loans, interest rates are one of the most important factors to consider.

By visiting Credible, you can learn more about refinancing student loans and compare rates from several private student lenders.

Student loan refinance rates at a glance

Student loan refinance rates can be fixed or variable and are always subject to change. Rates for five- and ten-year fixed-rate refinance student loans have begun to rise. Generally, the longer your repayment term, the higher the rate you can expect.

Credit scores also play a key role in determining who can refinance student loans at the most competitive price. As part of a COVID-19 relief initiative, the CARES Act suspends payments for federal student loan borrowers and sets the interest rate at zero until August 31, 2022.

But the CARES Act relief does not apply to private student loans. Refinancing your private loans at a lower interest rate could help you save money and even better manage your payments. Since private student loans can earn interest while you study or even during your grace period, it’s important to monitor how much you’re spending on loan repayments over time.

Here is an overview of current student loan refinance rates by credit score for five- and ten-year loan terms:

How Student Loan Refinance Rates Are Determined

Various factors, including changes in federal interest rates, affect private student loan rates.

The following factors help determine the interest rate you will receive on a student loan refinance:

  • Market conditions – Student loan refinance rates were usually based on prime or LIBOR (London Interbank Offered Rate), a money market interest rate and benchmark for setting interest rates on loans. However, LIBOR will be phased out by June 2023 to make way for a new interest rate index.
  • Credit score — Your credit score is another factor used by lenders to determine student loan refinance rates. The lowest rates on the market are reserved for borrowers with an excellent credit rating. If your credit score is fair or bad, you can expect to pay a higher rate.
  • Interest rate type — Whether the loan has a variable or fixed rate will also affect your rate. With variable rate student loans, the interest rate adjusts periodically and you might start with a lower interest rate. However, your rate and monthly payment could go up if rates go up. Meanwhile, with a fixed rate student loan refinance, your interest rate will stay the same for the duration of your repayment.
  • Employment, education and income — Your income, field of study, or college degree can also affect your rate, but it ultimately depends on what factors your lender deems important.

Private student lenders want to make sure you have a good credit score and enough income to make regular loan payments in addition to your other regular expenses and paying off your debts.

You can easily compare prequalified rates from several lenders using Credible.

Is it the right time to refinance?

Refinancing your student loans is a very personal decision as it depends on your particular situation. Student loan refinancing isn’t always the best option for everyone, so ask some of these questions to determine if it’s time to refinance:

  • How much debt do you have? Refinancing can be a debt relief option if you have high interest student loans. Plus, if you’re managing other debt repayments, lowering your student loan interest rate could help stretch your dollar. However, lenders may also look at your debt-to-equity ratio when considering a refinance application, so you can wait until your finances and cash flow have improved if you’re overwhelmed with debt.
  • What kind of student loans do you have? Private student loans are often worth refinancing if you can get better terms than your original loan. But consider that with federal student loans, you will lose access to federal relief programs such as deferment, forbearance, income-based repayment plans, and student loan forgiveness if you switch to a private lender by refinancing.
  • Will refinancing actually save you money? It’s important to crunch the numbers to see if student loan refinancing will actually help you save money in the long run. You can search for offers and compare interest rates. Use a student loan calculator to determine what your new monthly payment could be, as well as the total cost of your loan.

How to Refinance Student Loans

If you are considering refinancing your student loans, the process is simple and can be completed in five steps:

  1. Check your credit. Since lenders will check your credit at the time of your application, it is advisable to review your credit report and check your score beforehand. This way you can correct errors or inaccurate information. Also, if your credit score is lower than expected, decide if you want to try to improve it before refinancing your student loans. This could include paying off other debts, settling any collection accounts, and paying all your bills on time.
  2. Shop around for loan rates. Shop around and compare loan rates from multiple lenders to make sure you get the best deal. With Credible, you can fill out a short form and get quotes from multiple lenders to compare side-by-side. It won’t affect your credit score, but it can help you get prequalified and narrow down your options.
  3. Choose a loan. Decide which student loan refinance offer is right for you. Make sure you feel comfortable with the repayment term, interest rate, and fees.
  4. Submit an application. Once you have chosen a loan, you will need to submit an application. This requires providing more details than you provided to be prequalified. You will need to verify your income and provide other supporting documents. When your application is submitted, the lender will review it and give you a loan decision.
  5. Sign the loan documents and receive your loan funds. If your student loan refinance application is approved, you will need to sign the final loan documents. Then the lender will repay your current loan provider or send you the money to do so.

From there, you will start making payments on your newly refinanced student loan with your new lender.

Student loan refinancing can be a solid option if you have good credit, a stable income, and want to take advantage of better rates or a lower payment. Use Credible to compare student loan refinance rates from various lenders, all in one place.