Editorial note: We earn commissions from affiliate links on Forbes Advisor. The committees do not influence the views or evaluations of our authors.
Interest rates on refinanced student loans fell last week. Despite the rise, if you are interested in refinancing your student loans, you can still get a relatively low interest rate.
For borrowers with a credit score of 720 or higher who qualified for Credible.com’s student loan market from April 11 to April 15, the average flat rate for a 10-year refinancing loan was 4.18%. At a five-year floating rate loan, the interest rate was 3.46%, according to Credible.com.
Related: Best Student Loan Refinancing Lenders
Fixed rate loans
Last week, the average fixed interest rate on 10-year refinancing loans fell by 0.01% to 4.18%. Last week, the average was 4.19%.
Last year at this time, the average fixed interest rate for a 10-year refinancing loan was 3.77%, or 0.41% lower than the current interest rate. This means that refinancing borrowers now have the opportunity to lock in an interest rate that is significantly lower than they would have received at this time last year.
A borrower refinancing $ 20,000 student loans at the current average fixed interest rate would pay about $ 204 a month and about $ 4,505 at a total interest rate for 10 years, according to the Forbes Advisor student loan computer.
Variable rate loans
The average interest rate on five-year variable student refinancing loans rose 0.34% last week. It is now at 3.46%.
Unlike fixed interest rates, variable interest rates fluctuate over the course of a loan depending on market conditions and the ratio to which they relate. Many lenders refinance interest rates monthly for borrowers with floating rate loans, but usually limit the interest rate to 18%, for example.
Suppose you refinance an existing $ 20,000 loan into a five-year loan with a floating interest rate of 3.46%. You would pay around $ 363 on average per month. You would pay about $ 1,809 in total interest over the life of the loan. Keep in mind that since the interest rate is variable, it could fluctuate up or down from month to month.
Related: Do you need to refinance student loans?
Fixed rate loans versus variable rate loans
For most borrowers, the biggest incentive to refinance 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.
While variable interest rates may start low, they could rise in the future by making bets. But one way to reduce your exposure to risk is to repay your new refinancing loan as soon as possible. Choose the shortest loan term you can manage and pay extra when possible so that they are not subject to possible interest rate increases in the future.
When considering your options, compare interest rates between many student loan refinancing lenders to make sure you are not losing potential savings. Find out if you qualify for additional interest rate discounts by choosing automatic payments or having an existing financial account with a lender.
The right time to refinance student loans
Lenders generally require you to complete your degree before refinancing. Although it is possible to find a lender without this requirement, in most cases you will want to wait for refinancing until you graduate.
Keep in mind that you will need a good or excellent credit score to receive the lowest interest rates.
Using a co-signer is an option for those who do not have enough credit or income to qualify for a refinancing loan. Alternatively, you could wait until your credit and income are stronger. If you decide to use a co-signer, make sure he knows he will be responsible for the payments if you can not for some reason. The loan will also appear on their credit report.
Finally, make sure you save enough money to justify refinancing. At current interest rates, most borrowers with high credit scores can benefit from refinancing. But those with less than a lot of credit who will not receive the lowest fixed or variable interest rates may not receive it. First, explore the interest rates you could qualify for through multiple lenders, and then calculate your potential savings.
Student loan refinancing: What else to consider
When you refinance federal student loans into a private loan it means that you will lose access to certain federal loan benefits. You will no longer have access to features such as:
You may not need these programs if you have a steady income and plan to repay your loan quickly. But make sure you do not need these programs if you are considering refinancing your federal student loans.
If you need the benefits of these programs, you could refinance only your private loans or only a portion of your federal loans.