Last week, the average interest rate on 10-year fixed-rate private student loans inched down. This drop in rates is good news for borrowers interested in pursuing private student loans to make up for a gap in college funding.

According to Credible.com, from January 31 to February 4, the average fixed interest rate on a 10-year private student loan was 5.94%. It was 4.22% on a five-year variable-rate loan. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace.

Related: Best Private Student Loans

Fixed-rate Loans

The average fixed rate on 10-year private student loans last week dropped by 0.04% to 5.94%. The week prior, the average stood at 5.98%.

Borrowers in the market for a private student loan now can receive a lower 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 6.25%, 0.31% higher than today’s rate.

If you were to finance $20,000 in student loans at today’s average fixed rate, you’d pay around $221 per month and approximately $6,573 in total interest over 10 years, according to Low Cost Advisor’s student loan calculator.

Variable-rate Loans

Last week, the average rate on a variable five-year student loan fell to 4.22% on average from 4.77%.

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.

Let’s say you financed a $20,000 five-year loan with a variable interest rate of 4.22%. You’d pay about $370 on average per month. You’d pay approximately $2,219 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: 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 good option. But consider a federal student loan as your first option since the interest rates are typically lower. For example, the interest rate for federal undergraduate student loans is 3.73% for the 2021-22 school year. 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.

If you’re an undergraduate with limited credit history, you’ll generally need to apply with 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.

How To Compare 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.

Keep in mind that the best rates are only available to those with good or excellent credit.

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.

The Rate You’ll Receive

The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.