Editorial note: We earn commissions from affiliate links on Forbes Advisor. The committees do not influence the views or evaluations of our authors.
The average interest rate on refinanced student loans rose last week. For many borrowers, interest rates remain low enough that refinancing is a good choice.
For borrowers with a credit score of 720 or higher who qualified in the Credible.com student loan market from March 28 to April 1, the average flat rate for a 10-year refinancing loan was 4.19%. In a five-year floating rate loan, the interest rate was 3.08%, according to Credible.com.
Related: Best Student Loan Refinancing Lenders
Fixed rate loans
Last week, the average fixed interest rate on a 10-year refinancing loan jumped 0.17% to 4.19%. The average was 4.02% last week.
Last year at this time, the average fixed interest rate for a 10-year refinancing loan was 3.82%, or 0.37% 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.
If you were to refinance $ 20,000 in student loans at the current average fixed interest rate, you would be paying about $ 204 per month and about $ 4,516 in total interest for 10 years, according to the Forbes Advisor student loan computer.
Variable rate loans
The average variable interest rates on five-year refinancing loans fell by 0.04% last week, falling to 3.08%.
Variable interest rates fluctuate during a loan period depending on the ratio to which they are linked and market conditions. Many lenders refinance interest rates monthly for borrowers with floating rate loans, but usually limit how high the interest rate can go — lenders can set a limit of 18%, for example.
Refinancing an existing $ 20,000 loan into a five-year loan with an interest rate of 3.08% would yield a monthly payment of approximately $ 360. A borrower would pay $ 1,605 in total interest over the life of the loan. But because the percentage in this example is variable, it could go up or down from month to month within this time frame.
Related: Do you need to refinance student loans?
When to refinance student loans
Most lenders require borrowers to complete their degree before refinancing — though not all — so in most cases, wait until you graduate before refinancing. You will also need a good or excellent credit score and a steady income to access the lower interest rates.
If you are short on credit or your income is not high enough to qualify, you have some options. You can wait for refinancing until you create credit or have enough income. Or, you can get a co-signer. Just make sure the co-signer knows that if you can not make student loan payments, he or she will be responsible. The loan will appear on their credit report.
Before choosing to refinance, calculate your potential savings. It is important to make sure that you save enough to justify refinancing. Buy from many lenders for interest rates and take into account your credit score when shopping. Keep in mind that those with the highest credit scores receive the lowest rates.
Fixed rate loans versus variable rate loans
A big goal of refinancing student loans, for many borrowers, is to reduce the amount of interest paid. And that means having the lowest possible interest rate.
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.
Refinancing federal loans into private loans
There are a few things to keep in mind when refinancing a federal student loan into a private student loan. Initially, you will lose access to some of the benefits that federal student loans offer. For example, you will no longer have access to income-based repayment plans or deferral and tolerance options.
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.