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Rates on 10-year fixed-rate private student loans jumped up last week. Despite the rise, if you’re interested in getting a private student loan, you can still get a relatively low rate.
From May 16 to May 20, the average fixed interest rate on a 10-year private student loan was 6.42% 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 4.15% among the same population, according to Credible.com.
Related: Best Private Student Loans
Last week, the average fixed rate on a 10-year loan rose by 0.86% to 6.42%. The average stood at 5.56% the week prior.
Borrowers in the market for a private student loan now can receive 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 5.99%, 0.43% lower than today’s rate.
Let’s say you financed $20,000 in student loans at today’s average fixed rate. You’d pay around $226 per month and approximately $7,154 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans moved down last week by 0.19%, falling to 4.15%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.
If you were to finance a $20,000 five-year loan at a variable interest rate of 4.15%, you’d pay approximately $370 on average per month. In total interest over the life of the loan, you’d pay around $2,181. Of course, since the interest rate is variable, it could fluctuate up or down from month to month.
Related: How To Get A Private Student Loan
The Rate You’ll Receive
The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.
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 if you’re otherwise ineligible for them. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll enjoy more liberal repayment and forgiveness options than with a private loan. For example, the interest rate for federal undergraduate student loans is 3.73% for the 2021-22 school year.
Getting a private student loan generally involves applying directly through a non-federal lender, such as a bank, credit union or online entity. You may also be able to get a private student loan through a nonprofit organization, state agency or college.
It’s important to note that you’ll need a qualified co-signer if you have limited credit history, as undergraduates often do.
When applying for a private student loan, take into consideration the following:
- Your qualifications. Private student loans are credit-based. Lenders typically require a credit score in the higher 600s. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, via mail or over the phone.
- Your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
Shopping for Private Student Loans
First, take a look at the loan’s overall cost. Consider both interest rate and fees. Also, look at the type of help each lender offers if you’re not able to afford your payments.
If you have good or excellent credit, you have a better chance at landing the best interest rates.
How much should you borrow? Experts generally recommend borrowing no more than you’ll earn in your first year out of college. How much can you borrow? Some lenders cap the amount you can borrow each year, while others don’t. When you’re shopping around for a loan, take to lenders about how the loan is disbursed and what costs it will cover.