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Refinanced student loan rates increased last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.
The average fixed interest rate on a 10-year refinance loan was 3.85% from March 7 to March 11. This is for borrowers with a credit score of 720 or higher who have prequalified in Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 3.49% 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 increased by 0.10% to 3.85%. The previous week, the average was 3.75%.
This time last year, the average fixed rate on a 10-year refinance loan was 3.79%, 0.06% lower than the current rate. This means borrowers who refinance now have the option of receiving a significantly lower rate than they would have received this time last year.
If you were to refinance $20,000 in student loans at today’s average fixed rate, you’d pay about $201 per month and about $4,128 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
The average five-year variable student refinance loan rate rose 0.43% last week. It now stands at 3.49%.
Variable interest rates fluctuate over the term of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable rate loans, but they usually limit how high the rate is – lenders can set a limit of 18%, for example.
Refinancing an existing $20,000 loan to a five-year loan at 3.49% interest would yield a monthly payment of approximately $364. A borrower would pay $1,825 in total interest over the life of the loan. But since the rate in this example is variable, it can go up or down from month to month during this period.
Related: Should You Refinance Student Loans?
When should you refinance student loans?
Most lenders require borrowers to graduate before refinancing, but not all do, 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.
Using a co-signer is an option for those who do not have sufficient credit or income to qualify for a refinance loan. Alternatively, you can wait until your credit and income are stronger. If you decide to use a co-signer, make sure they are aware that they will be responsible for payments if you are unable to do so for any reason. The loan will also show up on their credit report.
It is important to make sure that you will save enough money when refinancing. While many borrowers with strong credit ratings could benefit from refinancing at today’s interest rates, those with weaker credit will not benefit from the lowest rates available.
Do the math to see if refinancing will benefit your situation. Shop around for rates, then calculate what you could save.
Refinancing of federal loans into private loans
A big catch when refinancing federal student loans to private student loans is that you’ll lose many of the benefits of federal loans, like income-driven repayment plans and generous deferment and forbearance options.
You may not need these programs if you have a stable income and plan to pay off your loan quickly. But be sure you won’t need these programs if you plan to refinance 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.
Student Loan Refinance Rate Comparison
For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.
Variable rates usually start low, but could go up in the future, making it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra when possible so that you are not subject to any rate increases in the future.
When considering your options, compare rates from multiple student loan refinance lenders to ensure you don’t miss out on possible savings. Determine if you qualify for additional interest rate discounts, possibly by choosing automatic payments or having an existing financial account with a lender.