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Refinanced student loan rates increased last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.
According to Credible.com, from June 6 to June 10, the average fixed interest rate on a 10-year refinance loan was 5.14%. It was 2.94% on a five-year variable rate loan. This is for borrowers with a credit score of 720 or higher who have prequalified in Credible.com’s student loan marketplace.
Related: Best Student Loan Refinance Lenders
Fixed rate loans
Last week, the average fixed rate on a 10-year refinance loan jumped 0.23% to 5.14%. The average was 4.91% the previous week.
This time last year, the average fixed rate on a 10-year refinance loan was 3.56%, which is 1.58% lower than the current rate. This means that borrowers who refinance now have the option of receiving a significantly lower rate than they would have received this time last year.
Let’s say you refinanced $20,000 in student loans at today’s average fixed rate. You’d pay about $214 a month and about $5,620 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 fell last week to 2.94% on average from 3.26%.
Unlike fixed rates, variable interest rates fluctuate over the life of a loan depending on market conditions and the index to which they are linked. Many refinance lenders recalculate rates monthly for borrowers with variable rate loans, but they usually limit the height of the rate, to 18%, for example.
Let’s say you refinanced an existing $20,000 loan into a five-year loan with a variable interest rate of 2.94%. You would pay around $359 on average per month. You would pay approximately $1,530 in total interest over the life of the loan. Keep in mind that since interest is variable, it can fluctuate up or down from month to month.
Related: Should You Refinance Student Loans?
Get the best 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.
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 to Refinance Student Loans
Lenders generally 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.
Using a co-signer is an option for those who do not have sufficient credit or income to qualify for a refinance loan. Alternatively, you can wait until your credit and income are stronger. If you decide to use a co-signer, make sure they know they will be responsible for payments if you can’t for some reason. The loan will also 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.
If you’re considering refinancing federal student loans, make sure first that you probably 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 of refinancing only your private loans or only part of your federal loans. Since fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.