May 25, 2022
  • May 25, 2022

April 18, 2022 – Lending Rates Drop – Forbes Advisor

By on April 18, 2022 0

Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

Refinanced student loan rates fell last week. Despite the rise, if you want to refinance your student loans, you can still get a relatively low rate.

For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan market from April 11 to April 15, the average fixed interest rate on a 10-year refinance loan was 4.18%. On a five-year variable-rate loan, the rate was 3.46%, according to Credible.com.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

Last week, the average fixed rate on 10-year refinance loans fell 0.01% to 4.18%. The previous week, the average was 4.19%.

This time last year, the average fixed rate on a 10-year refinance loan was 3.77%, 0.41% 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.

A borrower refinancing $20,000 in student loans at the current average fixed rate would pay about $204 per month and about $4,505 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

The average five-year variable student refinance loan rate rose 0.34% last week. It now stands at 3.46%.

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 3.46%. You would pay around $363 on average per month. You would pay approximately $1,809 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?

Fixed Rate Loans vs Variable Rate Loans

For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.

While variable rates may start low, they could rise in the future, making it a gamble. But one way to limit your exposure to risk is to pay off your new refinance loan as quickly as possible. Keep the loan term as short as possible and pay extra when possible so that you are not subject to any rate increases in the future.

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.

The right time 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 Student Loans: What Else to Consider

When you refinance federal student loans to a private loan, you lose access to some federal loan benefits. You will no longer have access to features such as:

You may not need these programs if you have a stable income and plan to pay off your loan quickly. But be sure you won’t need these programs if you plan to refinance federal student loans.

If you need the benefits of these programs, you can refinance only your private loans or only a portion of your federal loans.