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Interest rates on refinanced student loans are mixed..
During the week of October 23, the average fixed interest rate on a 10-year refinance loan was 7.33% for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. On a five-year variable-rate loan, the average interest rate was 6.90% among the same population, according to Credible.com.
These rates are accurate as of October 23, 2023.
Related: Best Student Loan Refinance Lenders
Last week, the average fixed rate on 10-year refinance loans decreased by 0.17 percentage points to 7.33%. The week before, the average stood at 7.50%.
Fixed interest rates won’t fluctuate 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 5.68%, 1.65 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 $236 per month and approximately $8,276 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year refinance loans moved up last week, from 5.88% on average to 6.90%.
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 6.90%. You’d pay about $395 on average per month. You’d pay approximately $3,705 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.
You may find that variable-rate loans start out lower than fixed-rate loans. But because they’re variable, they have the potential to rise in the future.
Fortunately, you can reduce your risk by paying off your new refinance loan quickly, or at least as quickly as possible. Start by picking a loan term that’s short but with a payment that’s manageable. Then, pay extra whenever you can. This can hedge your risk against potential rate increases.
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.
The Right Time To Refinance Student Loans
Lenders generally require you to complete your degree before refinancing. Though it’s possible to find a lender without this requirement, in most cases, you’ll want to wait to refinance until after you’ve graduated.
Keep in mind that you’ll need a good or excellent credit score to get 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 Federal Loans to Private Loans
When you refinance federal student loans to a private loan means you’ll lose access to some federal loan benefits. You’ll no longer have access to features like:
You may not need these programs if you have a stable income and plan to pay off your loan quickly.
If you do need the benefits of those programs, you could refinance only your private loans, or just a portion of your federal loans.