Last week, the average interest rate on refinanced student loans jumped up. Yet for many borrowers, it could still be a good time to refinance. Rates are still relatively low.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace from March 13 to March 18, the average fixed interest rate on a 10-year refinance loan was 7.12%. On a five-year variable-rate loan, the rate was 4.79%, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Last week, the average fixed rate on a 10-year refinance loan rose by 0.14% to 7.12%. The average stood at 6.98% the week prior.
Because fixed interest rates don’t change throughout a borrower’s loan term, it’s possible to lock in a rate that’s substantially lower than you would have received at this time last year. The average fixed rate on a 10-year refinance loan at this time last year was 3.80%, or 3.32% lower than today’s rate.
A borrower who refinances $20,000 in student loans to today’s average fixed rate would pay around $233 per month and approximately $8,015 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year refinance loans moved even lower last week to 4.79% on average from 5.59%.
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.
If you were to refinance an existing $20,000 loan to a five-year loan at a variable interest rate of 4.79%, you’d pay approximately $376 on average per month. In total interest over the life of the loan, you’d pay around $2,530. Of course, since the interest rate is variable, it could fluctuate up or down from month to month.
Related: Should You Refinance Student Loans?
When Should You Refinance Student Loans?
Lenders generally require you to complete your degree before refinancing. Though it’s possible to find a lender without this requirement, in most cases, you’ll want to wait to refinance until after you’ve graduated.
Keep in mind that to get the lowest interest rates, you’ll need a good or excellent credit score.
If you don’t yet have strong enough credit or income to qualify, you can either wait and refinance later or use a co-signer. The co-signer you choose should be aware that they’ll be responsible for making student loan payments if you no longer can and that 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. First, explore rates you could prequalify for via multiple lenders, then calculate your potential savings.
Comparing Student Loan Refinancing Rates
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.
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.
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.
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:
Income-driven repayment plans
Generous deferment and forbearance options
If you’re thinking about refinancing federal student loans, first make sure you likely won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You always have the option to refinance only your private loans, or only a portion of your federal loans. Since federal loans’ fixed interest rates are typically quite low, you may also decide refinancing wouldn’t lead to substantial savings.