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The average interest rate on 10-year fixed-rate private student loans slipped last week. For borrowers pursuing private loans to fill in gaps to pay for higher education expenses, rates remain relatively low for borrowers with solid credit.
The average fixed interest rate on a 10-year private student loan was 8.09% from October 23 to October 28. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 9.20% among the same population, according to Credible.com.
These rates are accurate as of October 23, 2023.
Related: Best Private Student Loans
The average fixed rate on 10-year private student loans last week fell by 0.04% to 8.09%. The week prior, the average stood at 8.13%.
Borrowers currently in the market for a private student loan will receive 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 7.68%, 0.41% lower than today’s rate.
A borrower who finances $20,000 in private student loans at today’s average fixed rate would pay around $244 per month and approximately $9,233 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans moved down last week to 9.20% on average from 10.17%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.
Financing a $20,000 five-year private loan at 9.20% would yield a monthly payment of approximately $417. A borrower would pay $5,027 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
Shopping 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.
Keep in mind that the best rates are only available to those with good or excellent credit.
How much should you borrow? Experts generally recommend borrowing no more than you’ll 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 you’re shopping around for a loan, take to lenders about how the loan is disbursed and what costs it will cover.
Getting a Private Student Loan
Before you look to a private student loan, consider a federal student loan as your first option. The interest rates on federal student loans are generally lower. Federal student loans also tend to have far more generous repayment and forgiveness options. Yet, if you’ve reached the borrowing limits for federal student loans or if you’re ineligible for them, private student loans can be a good solution.
When shopping for a private student loan, you’ll generally need to apply directly through a non-federal lender. This includes banks, credit unions, nonprofit organizations, state agencies, colleges and online entities.
It’s important to note that you’ll need a qualified co-signer if you have limited credit history, as undergraduates often do.
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 in the high 600s. This is why having a co-signer can be particularly beneficial.
- Apply directly through lenders. You can apply directly on the lender’s website, via mail or over the phone.
- Compare your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
How Your Interest Rate Is Determined
The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.