September 6, 2022—Lending Rates Cut – Forbes Advisor

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Refinanced student loan rates fell last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.

For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan market from August 29 through September 3, the average fixed interest rate on a 10-year refinance loan was 5.42%. On a five-year variable-rate loan, the rate was 5.39%, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

Last week, the average fixed rate on 10-year refinance loans fell 0.02% to 5.42%. The previous week, the average was 5.44%.

Because fixed interest rates don’t change over the term of a borrower’s loan, it’s possible to lock in a rate that’s significantly lower than what you would have received this time last year. The average fixed rate on a 10-year refinance loan this time last year was 3.42%, or 2.00% lower than the current rate.

If you were to refinance $20,000 in student loans at today’s average fixed rate, you’d pay about $216 per month and about $5,951 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 1.76% last week. It now stands at 5.39%.

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.

Let’s say you refinanced an existing $20,000 loan to a five-year loan with a variable interest rate of 5.39%. You would pay around $381 on average per month. You would pay approximately $2,861 in total interest over the life of the loan. Keep in mind that since interest is variable, it can fluctuate up or down from month to month.

Related: Should You Refinance Student Loans?

When should you refinance student loans?

Lenders generally require you to graduate before refinancing. While it’s possible to find a lender without this requirement, in most cases you’ll want to wait to refinance after you graduate.

Keep in mind that to get the lowest interest rates, you’ll need good or excellent credit.

If you don’t yet have enough credit or income to qualify, you can either wait and refinance later or use a co-signer. The co-signer you choose should know that they will be responsible for making student loan payments if you are no longer able to and that the loan will show up on their credit report.

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

Fixed Rate Loans vs Variable Rate Loans

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.

Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to increases in interest rates. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Still, if you like the reliability of a fixed payment, fixed rate loans might be a better choice.

Whether you opt for a fixed-rate or variable-rate loan, it’s important to compare rates from multiple lenders to make sure you don’t miss out on any savings. You may qualify for interest rate discounts by opting in to automatic payments or having an existing relationship with a lender.

Other Student Loan Refinance Features to Consider

A big caveat 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.

If you’re considering refinancing federal student loans, make sure first that you probably 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 of refinancing only your private loans or only part of your federal loans. Since fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.

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