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The average interest rate on 10-year fixed-rate private student loans fell last week. For many borrowers, that means rates continue to be low enough to make private student loans a decent option, especially if you have good credit.
For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan marketplace from June 6 through June 10, the average fixed interest rate on a 10-year private student loan was 5.61%. On a five-year variable-rate loan, the rate was 3.67%, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
Last week, the average 10-year fixed rate fell 0.17% to 5.61%. The previous week, the average was 5.78%.
Borrowers looking for a private student loan can now qualify for a higher 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 5.46%, 0.15% lower than the current rate.
If you were to fund $20,000 in student loans at today’s average fixed rate, you’d pay about $218 a month and about $6,177 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year loans rose last week from an average of 3.45% to 3.67%.
Unlike fixed rates, variable interest rates fluctuate over the term of the loan. Variable rates can start lower than fixed rates, especially during times when rates are generally low, but they can increase over time.
Private lenders often offer borrowers the option of choosing between fixed and variable interest rates. Fixed rates may be the safest bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose a variable loan.
Let’s say you financed a loan of $20,000 over five years with a variable interest rate of 3.67%. You would pay around $365 on average per month. You would pay approximately $1,922 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: How to get a private student loan
How to Compare Private Student Loans
When shopping for a private loan, consider the overall cost of the loan, including the interest rate and fees. You can also consider the type of assistance each lender offers if you are unable to make your loan payments.
Remember that those with good or excellent credit usually get the best rates.
Experts generally recommend that you don’t borrow more than you will earn in your first year of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, determine how the loan will be disbursed and what costs it will cover.
Get a private student loan
If you meet the annual borrowing limits for federal student loans or don’t qualify, private student loans may be a good choice. But consider a federal student loan as your first option since interest rates are generally lower. For example, the federal student loan interest rate for undergraduates is 3.73% for the 2021-22 school year. You will also benefit from more liberal repayment and forgiveness options with federal student loans.
To obtain a private student loan, you will usually need to apply directly with a non-federal lender. You can find private student loans from banks, credit unions, and online entities. Nonprofit organizations, state agencies, and colleges also offer loans.
Keep in mind that undergraduate students with limited credit histories often need a co-signer who can meet the borrowing requirements of the lender.
Here’s what to consider when applying for a private student loan:
- Make sure you qualify.Private student loans are credit-based, and lenders typically require a credit score over 600. That’s why having a co-signer can be especially beneficial.
- Apply directly through lenders.You can apply directly on the lender’s website, by mail or by phone.
- Compare your options.Look at what each lender is offering and compare the interest rate, term, future monthly payment, origination fees and late fees. Also check to see if the lender offers a co-signer release so that the co-borrower can potentially opt out of the loan.
How lenders determine your rate
Lenders offering private student loans generally offer fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you will receive. But credit history, income, the degree you’re working on, and your career can also factor into the interest rate you receive.