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Interest rates on refinanced student loans are increasing.
For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace during the week of April 22, the average fixed interest rate on a 10-year refinance loan was 7.47%. On a five-year variable-rate loan, the rate was 7.00%, according to Credible.com.
These rates are accurate as of April 22, 2024.
Related: Best Student Loan Refinance Lenders
Fixed-Rate Loans
The average fixed rate on 10-year refinance loans last week increased by 0.07 percentage points to 7.47%. The week before, the average stood at 7.40%.
Fixed interest rates don’t change throughout a borrower’s loan term. That means borrowers refinancing now will lock in a rate higher than one they would have received this time last year. At this time last year, the average fixed rate on a 10-year refinance loan was 6.96%, 0.51 percentage points lower than today’s rate.
If you were to refinance $20,000 in student loans to today’s average fixed rate, you’d pay around $237 per month and approximately $8,451 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-Rate Loans
The average rate on five-year variable student refinance loans moved up by 1.12% last week. Now it sits at 7.00%.
Variable interest rates fluctuate during a loan term according to the index they’re tied to and market conditions. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—lenders may set a limit of 18%, for instance.
Let’s say you refinanced an existing $20,000 loan to a five-year loan with a variable interest rate of 7.00%. You’d pay about $396 on average per month. You’d pay approximately $3,761 in total interest over the life of the loan. Keep in mind that since the interest is variable, it could fluctuate up or down from month to month.
Related: Should You Refinance Student Loans?
Fixed-rate Loans vs. Variable-rate Loans
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.
When to Refinance Student Loans
Most lenders require borrowers to complete their degree before refinancing—though not all—so in most cases, wait to refinance until you’ve graduated. You’ll also need a good or excellent credit score and stable income to access the lowest interest rates.
If you don’t yet have strong enough credit or income to qualify, you can either wait and refinance later or ask a friend or relative to be 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.
Refinancing Student Loans: What Else to Consider
There are a few things to keep in mind when refinancing a federal student loan into a private student loan. To begin, you’ll lose access to some benefits that federal student loans offer. For instance, you’ll no longer have access to income-driven repayment plans or 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 quickly pay off a refinance loan. 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.