August 8, 2022—Lending Rates Rise – Forbes Advisor

Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

Last week, the average interest rate on refinanced student loans rose slightly. Despite the rise, rates remain relatively low, giving borrowers the opportunity to refinance at a lower rate.

The average fixed interest rate on a 10-year refinance loan was 5.75% from August 1 to August 6. This is for borrowers with a credit score of 720 or higher who have prequalified in Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 2.79% among the same population, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

Last week, the average fixed rate on 10-year refinance loans rose by 0.32% to 5.75%. The previous week, the average was 5.43%.

Fixed interest rates remain the same throughout the term of the borrower’s loan. This allows borrowers refinancing now to lock in a significantly lower rate than they would have received this time last year. This time last year, the average fixed rate on a 10-year refinance loan was 3.43%, 2.32% lower than the current rate.

If you were to refinance $20,000 in student loans at today’s average fixed rate, you’d pay about $220 per month and about $6,345 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

Last week, the average five-year variable refinance student loan rate fell to 2.79% on average, from 3.58%.

Variable interest rates fluctuate over the term of a loan depending on the index to which they are linked and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable rate loans, but they usually limit how high the rate is – lenders can set a limit of 18%, for example.

If you were to refinance an existing $20,000 loan into a five-year loan at a variable interest rate of 2.79%, you would pay around $358 on average per month. In total interest over the term of the loan, you would pay approximately $1,451. Of course, since the interest rate is variable, it can fluctuate up or down from month to month.

Related: Should You Refinance Student Loans?

Student Loan Refinance Rate Comparison

One of the primary goals of student loan refinancing, for many borrowers, is to reduce the amount of interest paid. And that means getting the lowest interest rate possible.

Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to increases in interest rates. You can limit the risk of rising interest rates 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 might be a better choice.

When considering your options, compare rates from multiple student loan refinance lenders to ensure you don’t miss out on possible savings. Determine if you qualify for additional interest rate reductions, possibly by choosing automatic payments or having an existing financial account with a lender.

When should you refinance student loans?

Lenders usually require you to graduate before refinancing. While it’s possible to find a lender without this requirement, in most cases you’ll want to wait to refinance after you graduate.

Keep in mind that you’ll need a good or excellent credit score to get the lowest interest rates.

If your credit is failing or your income is not high enough to qualify, you have several options. You can wait to refinance until you have accumulated credit or have sufficient income. Or, you can get a co-signer. Just make sure the cosigner knows they’ll be responsible if you can’t repay your student loan. The loan will show up on their credit report.

Finally, make sure you can save enough money to justify refinancing. At current rates, most borrowers with high credit ratings can benefit from refinancing. But those with less than excellent credit who won’t receive the lowest fixed or variable interest rates may not be able to. First, explore the rates you could prequalify for through multiple lenders, then calculate your potential savings.

Refinancing of 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. For starters, you will lose access to certain benefits offered by federal student loans. For example, you will no longer have access to income-tested repayment plans or deferment and forbearance options.

You may not need these programs if you have a stable income and plan to pay off your loan quickly. But be sure you won’t need these programs if you plan to refinance federal student loans.

If you need the benefits of these programs, you can refinance only your private loans or only a portion of your federal loans.

Comments are closed.