Student Loan Refinance Rates: October 10, 2022—Loan Rates Decrease
Last week, the average interest rate on refinanced student loans fell. Overall, rates remain low, making refinancing a student loan a worthwhile option for borrowers.
From October 3 to October 8, the average fixed interest rate on a 10-year refinance loan was 5.49% 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 3.41% among the same population, according to Credible.com.
Related: Best Student Loan Refinance Lenders
Fixed-rate Loans
Last week, the average fixed rate on 10-year refinance loans decreased by 0.07% to 5.49%. The week prior, the average stood at 5.56%.
Because fixed interest rates don’t change throughout a borrower’s loan term, it’s possible to lock in a rate that’s considerably lower than you would have received at this time last year. The average fixed rate on a 10-year refinance loan at this time last year was 3.45%, or 2.04% 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 $217 per month and approximately $6,034 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-rate Loans
Last week, rates on variable five-year refinance student loans moved up, reaching 3.41% from 3.38% the week prior.
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.
Refinancing an existing $20,000 loan to a five-year loan at 3.41% interest would yield a monthly payment of approximately $363. A borrower would pay $1,782 in total interest over the life of the loan. But the rate in this example is variable, and it could move up or down each month.
Related: Should You Refinance Student Loans?
When Should You 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 to get the lowest interest rates, you’ll need a good or excellent credit score.
If you don’t yet have strong enough credit or income to qualify, you can either wait and refinance later or use 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. Start by exploring rates you could prequalify for via multiple lenders, then calculate your potential savings.
Other Student Loan Refinancing Features 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.
Comparing Student Loan Refinancing Rates
One big goal of refinancing student loans, for many borrowers, is reducing the amount of interest paid. And that means getting the lowest possible interest rate.
You may find that variable-rate loans start 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 short loan term but with a manageable payment. 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.
