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Refinanced student loan rates fell last week. This means that if you are interested in refinancing your student loans, you can still get a relatively low rate.
From August 2 to 6, the average fixed interest rate on a 10-year refinance loan was 3.43% for borrowers with a credit score of 720 or higher who pre-qualified in the student loan market of Credible.com. On a five-year variable rate loan, the average interest rate was 2.62% among the same population, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Fixed rate loans
Last week, the average fixed rate on 10-year refinance loans declined 0.09% to 3.43%. The previous week, the average stood at 3.52%.
Fixed interest rates remain the same for the duration of a borrower’s loan. This allows borrowers who are refinancing now to lock in at a much lower rate than they would have received around the same time last year. At the same time last year, the average fixed rate on a 10-year refinance loan was 4.25%, 0.82% higher than the current rate.
Let’s say you refinanced $ 20,000 in student loans at today’s average fixed rate. You would pay about $ 197 per month and about $ 3,654 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year refinancing loans fell last week to 2.62% on average from 2.73% the week before.
Unlike fixed rates, variable interest rates fluctuate over the life of a loan depending on market conditions and the index to which they are linked. Many refinance lenders recalculate the rates monthly for borrowers with variable rate loans, but they usually limit the interest rate. Lenders can limit the interest rate to 18%, for example.
Refinancing an existing $ 20,000 loan into a five-year loan at an interest rate of 2.62% would result in a monthly payment of approximately $ 356. A borrower would pay $ 1,360 in total interest over the life of the loan. But because the rate in this example is variable, it may go up or down from month to month during this time period.
Related: Should You Refinance Student Loans?
When to refinance student loans
Most lenders require borrowers to graduate before refinancing, but not all, so in most cases, wait to refinance until you graduate. You will also need a good or excellent credit score and a stable income in order to access the lowest interest rates.
If you have insufficient credit or your income is not high enough to qualify, there are several options available to you. You can wait to refinance until you have accumulated credit or have sufficient income. Or, you can get a co-signer. Just make sure the co-signer knows that if you can’t pay off your student loan, they’ll be responsible for it. The loan will appear on their credit report.
Before choosing to refinance, calculate your potential savings. It is important to make sure that you are saving enough to justify refinancing. Buy rates from multiple lenders and take your credit score into account when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.
Compare Student Loan Refinance Rates
Refinancing a student loan at the lowest possible interest rate is one of the best ways to reduce the amount of interest you will pay over the life of the loan.
Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to interest rate increases. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Nonetheless, if you like the reliability of a fixed payment, then fixed rate loans might be a better choice.
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. For starters, you will lose access to some of the benefits offered by federal student loans. For example, you will no longer have access to income-based repayment plans or deferral and forbearance options.
You may not need these programs if you have a stable income and plan to pay off your loan quickly. But make sure you won’t need these programs if you’re thinking about refinancing federal student loans.
If you need the benefits of these programs, you can refinance only your private loans or only a portion of your federal loans.