Refinancing your student loan might help you get a better rate.
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Average interest rates on refinanced student loans have largely gone up since two weeks ago, according to Credible. Five-year rates on undergraduate loans have increased, while graduate rates have fallen off a cliff. Ten-year rates on both undergraduate and graduate loans have inched up just slightly.
Rates on federal student loans are set to see the largest increase since the 2005-06 academic year. These new rates won’t directly impact private student loan rates, but private rates may tick up as they don’t have to remain as low to be competitive with federal loan rates.
Laurel Taylor, CEO and founder of student debt fintech company FutureFuel.io, says that over the last 20 years, it has been rare for rates to go up so substantially over such a short period of time. However, Taylor says borrowers shouldn’t be overly worried about the increase in federal rates.
“The monthly payment impact is relatively minor, adding up to less than $5 per month and less than $400 over the standard 10-year repayment on a typical annual borrowing of $5,500 for an undergraduate,” Taylor says.
5-year variable student loan refinancing rates
Refinance rates on 5-year variable undergraduate student loans are at 3.62%on average this past week, up from 3.40% two weeks ago. Six months ago, this rate was around 2.59%.
The refinance rates on 5-year variable graduate loans have fallen compared to two weeks ago. Currently, the average rate is 3.08%, which is still a little higher than it was this time last year.
10-year fixed student loan refinancing rates
Refinance rates on 10-year undergraduate and graduate fixed student loans this past week are slightly up from than two weeks ago, with rates changing by just six basis points. Rates have gone up more substantially since six months ago.
Student loan interest rates by credit score
The rate you get when you refinance is significantly impacted by your
.. Usually, the better your credit score, the lower rate you’ll receive. Below, we’ve listed the 10-year fixed student loan rates by credit score:
What’s the benefit of refinancing a student loan?
Refinancing your student loan may qualify you for a better rate than the one you currently have. You also have the ability to change from a variable-rate loan to a fixed-rate loan, or switch up your term length. By selecting a different term length, you may be able to spread out payments over a longer period for smaller monthly payments, though you’ll pay more in total interest.
How do you refinance a student loan?
To start refinancing, look at different companies and check your terms with each lender. Look over the details of each offer and figure out which rate and term length is best for you. When you check your rates, lenders will often perform a soft credit check, which doesn’t hurt your credit score.
You’ll need to apply to refinance through a private student loan lender, as you aren’t able refinance a student loan through the federal government.
Once you’ve picked out a company, you’ll fill out its application and provide documents that verify your finances and identity. After the lender gives you its final offer, you’ll need to agree to the terms and sign on the dotted line. Then, your new lender will pay off your existing loan and you’ll be ready to go with a new loan.
How do I choose between a 5-year and 10-year loan?
Both types of loans are right for different types of borrowers.
If you want a lower interest rate and you’re able to pay off your loan more quickly, a 5-year loan term could be a great choice. You’ll save money in interest and will free up money to put toward your other financial goals faster.
A 10-year loan term will cost you more overall, but you’ll make smaller monthly payments. This may make it easier for you to repay your loan if you’re on a tight budget.
Ryan Wangman is a junior reporter at Personal Finance Insider reporting on personal loans, student loans, student loan refinancing, debt consolidation, auto loans, RV loans, and boat loans. He is also a Certified Educator in Personal Finance (CEPF). In his past experience writing about personal finance, he has written about credit scores, financial literacy, and homeownership. He graduated from Northwestern University and has previously written for The Boston Globe. Learn more about how Personal Finance Insider chooses, rates, and covers financial products and services here >>
