The average interest rate on 10-year fixed-rate private student loans jumped up last week. For many borrowers, that means rates continue to be low enough to make private student loans a decent option, especially if you have good credit.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace from January 1 to January 6, the average fixed interest rate on a 10-year private student loan was 7.88%. On a five-year variable-rate loan, the rate was 7.46%, according to Credible.com.
These rates are accurate as of January 1, 2024.
Related: Best Private Student Loans
Last week, the average fixed rate on a 10-year loan rose by 0.45% to 7.88%. The average stood at 7.43% the week prior.
Borrowers currently in the market for a private student loan will receive a higher rate than they would have at this time last year. At this time last year, the average fixed rate on a 10-year loan was 7.07%, 0.81% lower than today’s rate.
Let’s say you financed $20,000 in student loans at today’s average fixed rate. You’d pay around $241 per month and approximately $8,967 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Last week, the average rate on a variable five-year student loan fell to 7.46% on average from 11.74%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.
Financing a $20,000 five-year private loan at 7.46% would yield a monthly payment of approximately $400. A borrower would pay $4,023 in total interest over the life of the loan. But the rate in this example is variable, and it could move up or down each month.
Related: How To Get A Private Student Loan
How To Get a Private Student Loan
If you reach the annual borrowing limits for federal student loans or if you’re otherwise ineligible for them, private student loans may be a decent option. But consider a federal student loan as your first option since the interest rates are typically lower. You’ll also receive more liberal repayment and forgiveness options with federal student loans.
When shopping for a private student loan, you’ll generally need to apply directly through a non-federal lender. This includes banks, credit unions, nonprofit organizations, state agencies, colleges and online entities.
Keep in mind that undergraduates with limited credit history often need a co-signer who can meet the lender’s borrowing requirements.
When applying for a private student loan, take into consideration the following:
- Your qualifications. Private student loans are credit-based. Lenders typically require a credit score in the higher 600s. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, via mail or over the phone.
- Your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
Comparing Private Student Loans
When shopping for a private loan, consider the overall cost of the loan, including interest rate and fees. You may also want to consider the type of assistance each lender offers if you’re not able to make your loan payments.
Remember, those with good or excellent credit typically get the best rates.
Experts generally recommend that you borrow no more than what you’ll earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, figure out how the loan will be disbursed and what costs it covers.
How Lenders Determine Your Rate
Lenders offering private student loans generally offer both fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you’ll receive. But credit history, income, the degree you’re working on and your career can factor into the interest rate you receive as well.
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