January 24, 2022—Loan Rates Increase – Low Cost Advisor
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Last week, the average interest rate on refinanced student loans moved up. Rates remain low enough for many borrowers to justify refinancing their student loans.
The average fixed interest rate on a 10-year refinance loan was 3.56% from January 17 to January 21. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 3.41% among the same population, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Last week, the average fixed rate on a 10-year refinance loan jumped by 0.12% to 3.56%. The average stood at 3.44% the week prior.
At this time last year, the average fixed rate on a 10-year refinance loan was 3.80%, or 0.24% higher than today’s rate. That means that borrowers who refinance now have the chance to lock in a rate that’s substantially lower than they would have received at this time last year.
A borrower who refinances $20,000 in student loans to today’s average fixed rate would pay around $198 per month and approximately $3,800 in total interest over 10 years, according to Low Cost Advisor’s student loan calculator.
Average variable rates on five-year refinance loans moved up last week, from 2.89% on average to 3.41%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term according to market conditions and the index they’re tied to. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—to 18%, for instance.
Refinancing an existing $20,000 loan to a five-year loan at 3.41% interest would yield a monthly payment of approximately $363. A borrower would pay $1,782 in total interest over the life of the loan. But since the rate in this example is variable, it could go up or down from month to month within that time frame.
Related: Should You 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 to refinance until you’ve graduated. You’ll also need a good or excellent credit score and stable income in order to access the lowest interest rates.
If your credit is poor or your income isn’t high enough to qualify, you have a couple of options. You can wait to refinance until you’ve built credit or you have enough income. Or, you can get a co-signer. Just make sure that the co-signer knows that if you can’t make student loan payments, they’ll be responsible. The loan will appear on their credit report.
Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with less-than-great credit who won’t receive the lowest fixed or variable interest rates may not. Start by exploring rates you could prequalify for via multiple lenders, then calculate your potential savings.
Refinancing Student Loans: What Else to Consider
When you refinance federal student loans to a private loan means you’ll lose access to some federal loan benefits. You’ll no longer have access to features like:
You may not need these programs if you have a stable income and plan to pay off your loan quickly. But make sure you won’t need these programs if you’re thinking about refinancing federal student loans.
If you do need the benefits of those programs, you could refinance only your private loans or just a portion of your federal loans.
What To Consider When Comparing Student Loan Refinancing Rates
One big goal of refinancing student loans, for many borrowers, is reducing the amount of interest paid. And that means getting the lowest possible interest rate.
Rates on variable loans may start out lower than rates on fixed-rate loans. Of course, because they’re variable, they’re subject to interest rate increases. You can limit the risk of interest rate increases with variable-rate loans by paying off your loan as quickly as possible. Still, if you like the reliability of a fixed payment, fixed-rate loans could be a better choice.
When considering your options, compare rates across multiple student loan refinancing lenders to ensure you’re not missing out on possible savings. Explore whether you qualify for additional interest rate discounts, potentially by choosing automatic payments or by having an existing financial account with a lender.