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Last week, the average interest rate on 10-year fixed-rate private student loans moved down. Overall, rates remain fairly low, making private student loan a worthwhile option for borrowers looking to make up a gap in college funding.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace from May 2 to May 6, the average fixed interest rate on a 10-year private student loan was 6.03%. On a five-year variable-rate loan, the rate was 5.23%, according to Credible.com.
Related: Best Private Student Loans
Last week, the average fixed rate on 10-year loans fell by 0.03% to 6.03%. The week prior, the average stood at 6.06%.
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 5.31%, 0.72% lower than today’s rate.
A borrower who finances $20,000 in private student loans at today’s average fixed rate would pay around $222 per month and approximately $6,681 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans moved up last week, from 4.57% on average to 5.23%.
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.
Let’s say you financed a $20,000 five-year loan with a variable interest rate of 5.23%. You’d pay about $380 on average per month. You’d pay approximately $2,772 in total interest over the life of the loan. Keep in mind that since the interest is variable, it could fluctuate up or down from month to month.
Related: How To Get A Private Student Loan
How Lenders Determine Your Rate
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
Before you look to a private student loan, consider a federal student loan as your first option. The interest rates on federal student loans are generally lower—for example, for the 2021-22 school year, the interest rate for federal undergraduate student loans is 3.73%. Federal student loans also tend to have far more generous repayment and forgiveness options. Yet, if you’ve reached the borrowing limits for federal student loans or if you’re ineligible for them, private student loans can be a good solution.
When shopping for a private student loan, you’ll generally need to apply directly through a non-federal lender. This includes banks, credit unions, nonprofit organizations, state agencies, colleges and online entities.
If you’re an undergraduate with limited credit history, you’ll generally need to apply with a co-signer who can meet the lender’s borrowing requirements.
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.
How To Compare 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 have a better chance at landing the best interest rates.
Experts generally recommend that you borrow no more than what you’ll earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, figure out how the loan will be disbursed and what costs it covers.