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Interest rates on refinanced student loans are jumping up.
During the week of March 4, the average fixed interest rate on a 10-year refinance loan was 7.46% 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 6.59% among the same population, according to Credible.com.
These rates are accurate as of March 4, 2024.
Related: Best Student Loan Refinance Lenders
Fixed-Rate Loans
The average fixed rate on 10-year refinance loans last week climbed by 0.11 percentage points to 7.46%. The week before, the average stood at 7.35%.
Fixed interest rates don’t change 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 6.81%, 0.65 percentage points lower than today’s rate.
A borrower who refinances $20,000 in student loans to today’s average fixed rate would pay around $237 per month and approximately $8,438 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-Rate Loans
Last week, the average rate on a variable five-year refinance student loan fell to 6.59% on average from 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 6.59%. You’d pay about $392 on average per month. You’d pay approximately $3,530 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
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.
Rates on variable loans may start out lower than rates on fixed-rate loans. Of course, because they’re variable, they’re subject to interest rate increases. You can limit the risk of interest rate increases with variable-rate loans by paying off your loan as quickly as possible. Still, if you like the reliability of a fixed payment, fixed-rate loans could be a better choice.
When considering your options, compare rates across multiple student loan refinancing lenders to ensure you’re not missing out on possible savings. Explore whether you qualify for additional interest rate discounts, potentially by choosing automatic payments or having an existing financial account with a lender.
How To Get the Best Student Loan Refinance Rates
The best student loan refinance rates typically go to borrowers with strong credit. To get the best rate, take some time to improve your credit before you apply. Paying down debts, reducing your credit utilization ratio and disputing any errors on your credit report can boost your credit.
Another option is applying for student loan refinance with a co-signer. If you can add a creditworthy co-signer to your application, you might qualify for a better interest rate. However, remember that your co-signer will share responsibility for the loan.
Finally, compare offers from multiple lenders. Each lender sets its own rates and terms, so shopping around can help you find a student loan refinance offer with the best rate.
When Should You Refinance Student Loans?
Most lenders require borrowers to complete their degree before refinancing—though not all—so in most cases, wait to refinance until you’ve graduated. You’ll also need a good or excellent credit score and stable income to access the lowest interest rates.
Asking a relative or friend to be a co-signer is one option for those who don’t have strong enough credit or income to qualify for a refinance loan. Alternatively, you could wait until your credit and income are stronger. If you decide to use a co-signer, make sure they understand they’ll be responsible for any payments you can’t make. The loan will also appear on their credit report.
