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The average interest rate for 10-year fixed-rate private student loans rose slightly last week. For borrowers looking for private loans to fill gaps to pay for higher education expenses, rates remain relatively low for borrowers with strong credit.
The average fixed interest rate on a 10-year private student loan was 6.30% from June 13 to June 17. 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 4.43% among the same population, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
The average 10-year fixed rate rose last week from 0.69% to 6.30%. The previous week, the average was 5.61%.
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 5.76%, or 0.54% 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 $225 a month and about $7,008 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average five-year variable loan rates rose last week from an average of 3.67% to 4.43%.
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.
Financing a private loan of $20,000 over five years at 4.43% would yield a monthly payment of approximately $372. A borrower would pay $2,333 in total interest over the life of the loan. Keep in mind that since the interest rate is variable, it could change monthly.
Related: How to get a private student loan
How lenders determine your rate
The rate you receive varies depending on whether you get a fixed or variable loan. Rates are partly based on your creditworthiness – those with higher credit scores often get the lowest rates. But your rate is also based on other factors. Credit history, income, and even the degree you’re working on and your career can all play a role.
Apply for 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.
Obtaining a private student loan usually involves applying directly through a non-federal lender, such as a bank, credit union, or online entity. You may also be able to get a private student loan through a nonprofit organization, state agency, or college.
If you are an undergraduate student with a limited credit history, you will usually need to apply with a co-signer who can meet the borrowing requirements of the lender.
When applying for a private student loan, consider the following:
- Your qualities. Private student loans are credit-based. Lenders typically require a credit score above 600. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, by mail or by phone.
- Your choices. 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.
Shop for Private Student Loans
When comparing private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It’s also important to consider the type of help the lender offers if you can’t afford your payments.
Remember that those with good or excellent credit usually get the best rates.
How much should you borrow? Experts generally recommend not borrowing more than you will earn in your first year out of college. How much can you borrow? Some lenders cap the amount you can borrow each year, while others don’t. When shopping for a loan, let lenders know how the loan is disbursed and what costs it will cover.