June 6, 2022—Loan Rates Jump Up – Forbes Advisor


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Rates on refinanced student loans increased last week. Despite the rise, if you’re interested in refinancing your student loans, you can still get a relatively low rate.

From May 30 to June 3, the average fixed interest rate on a 10-year refinance loan was 4.91% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. On a five-year variable-rate loan, the average interest rate was 3.26% among the same population, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed-rate Loans

The average fixed rate on 10-year refinance loans last week climbed by 0.16% to 4.91%. The week prior, the average stood at 4.75%.

Fixed interest rates don’t change throughout a borrower’s loan term. That allows borrowers refinancing now to lock in a rate significantly lower than they would have received this time last year. At this time last year, the average fixed rate on a 10-year refinance loan was 3.80%, 1.11% lower than today’s rate.

If you were to refinance $20,000 in student loans to today’s average fixed rate, you’d pay around $211 per month and approximately $5,350 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable-rate Loans

Last week, the average rate on a variable five-year refinance student loan fell to 3.26% on average from 4.56%.

Variable interest rates fluctuate during a loan term according to the index they’re tied to and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—lenders may set a limit of 18%, for instance.

If you were to refinance an existing $20,000 loan to a five-year loan at a variable interest rate of 3.26%, you’d pay approximately $362 on average per month. In total interest over the life of the loan, you’d pay around $1,701. Of course, since the interest rate is variable, it could fluctuate up or down from month to month.

Related: Should You Refinance Student Loans?

When to Refinance Student Loans

Most lenders require borrowers to complete their degree before refinancing—though not all—so in most cases, wait to refinance until you’ve graduated. You’ll also need a good or excellent credit score and stable income in order to access the lowest interest rates.

If your credit is lacking or your income isn’t high enough to qualify, you have a couple of options. You can wait to refinance until you’ve built credit or you have enough income. Or, you can get a co-signer. Just make sure that the co-signer knows that if you can’t make student loan payments, they’ll be responsible. The loan will appear on their credit report.

Before you choose to refinance, calculate your potential savings. It’s important to make sure you’ll save enough to justify refinancing. Shop at multiple lenders for rates and take your credit score into consideration when shopping around. Keep in mind that those with the highest credit scores receive the lowest rates.

What To Consider When Comparing Student Loan Refinancing Rates

Refinancing a student loan at the lowest possible interest rate is one of the best ways to reduce the amount of interest you’ll pay over the life of the loan.

While variable rates may start out low, they could rise in the future, making them a gamble. But one way to limit your risk exposure is to pay off your new refinance loan as fast as possible. Choose as short a loan term as you can manage, and pay extra when possible so that you’re not subject to potential rate increases in the future.

Regardless of whether you decide on a fixed- or variable-rate loan, it’s important to compare rates across multiple lenders to make sure you’re not missing out on possible savings. There’s a chance you could qualify for interest rate discounts by opting for automatic payments or by having an existing relationship with a lender.

Refinancing Federal Loans to Private Loans

There are a few things to keep in mind when refinancing a federal student loan into a private student loan. To begin, you’ll lose access to some benefits that federal student loans offer. For instance, you’ll no longer have access to income-driven repayment plans or deferment and forbearance options.

If you’re thinking about refinancing federal student loans, first make sure you likely won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You always have the option to refinance only your private loans, or only a portion of your federal loans. Since federal loans’ fixed interest rates are typically quite low, you may also decide refinancing wouldn’t lead to substantial savings.

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