Interest rates on refinanced student loans are mixed.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace during the week of January 15, the average fixed interest rate on a 10-year refinance loan was 7.34%. On a five-year variable-rate loan, the rate was 6.25%, according to Credible.com.
These rates are accurate as of January 15, 2024.
Related: Best Student Loan Refinance Lenders
Fixed-Rate Loans
Last week, the average fixed rate on 10-year refinance loans decreased by 0.31 percentage points to 7.34%. The week before, the average stood at 7.65%.
Fixed interest rates won’t fluctuate throughout a borrower’s loan term. That means borrowers refinancing now will lock in a rate higher than one they would have received this time last year. At this time last year, the average fixed rate on a 10-year refinance loan was 6.18%, 1.16 percentage points lower than today’s rate.
A borrower who refinances $20,000 in student loans to today’s average fixed rate would pay around $236 per month and approximately $8,288 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-Rate Loans
Average variable rates on five-year refinance loans moved up last week, from 5.79% on average to 6.25%.
Variable interest rates fluctuate during a loan term according to the index they’re tied to and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—lenders may set a limit of 18%, for instance.
Let’s say you refinanced an existing $20,000 loan to a five-year loan with a variable interest rate of 6.25%. You’d pay about $389 on average per month. You’d pay approximately $3,339 in total interest over the life of the loan. Keep in mind that since the interest is variable, it could fluctuate up or down from month to month.
Related: Should You Refinance Student Loans?
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.
While variable rates may start out low, they could rise in the future, making them a gamble. But one way to limit your risk exposure is to pay off your new refinance loan as fast as possible. Choose as short a loan term as you can manage, and pay extra when you can. This will help you pay off your loan quicker and avoid potential rate increases in the future.
Regardless of whether you decide on a fixed- or variable-rate loan, it’s important to compare rates across multiple lenders to make sure you’re not missing out on possible savings. There’s a chance you could qualify for interest rate discounts by opting for automatic payments or by having an existing relationship with a lender.
How To Find the Best Student Loan Refinance Rates?
The best student loan refinance rates typically go to borrowers with strong credit. To get the best rate, take some time to improve your credit before you apply. Paying down debts, reducing your credit utilization ratio and disputing any errors on your credit report can boost your credit.
Another option is applying for student loan refinance with a co-signer. If you can add a creditworthy co-signer to your application, you might qualify for a better interest rate. However, remember that your co-signer will share responsibility for the loan.
Finally, compare offers from multiple lenders. Each lender sets its own rates and terms, so shopping around can help you find a student loan refinance offer with the best rate.
When to Refinance Student Loans
Most lenders require borrowers to complete their degree before refinancing—though not all—so in most cases, wait to refinance until you’ve graduated. You’ll also need a good or excellent credit score and stable income to access the lowest interest rates.
Asking a relative or friend to be a co-signer is one option for those who don’t have strong enough credit or income to qualify for a refinance loan. Alternatively, you could wait until your credit and income are stronger. If you decide to use a co-signer, make sure they understand they’ll be responsible for any payments you can’t make. The loan will also appear on their credit report.
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