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Last week, the average 10-year fixed-rate private student loan interest rate jumped. Despite the hike, rates still remain relatively low, offering borrowers the opportunity to fill the financial gaps in higher education costs.
According to Credible.com, from October 25 to 29, the average fixed interest rate on a 10-year private student loan was 6.75%. It was 5.43% on a five-year variable rate loan. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market.
Related: Best private student loans
Fixed rate loans
Last week, the average fixed rate on a 10-year loan climbed from 0.94% to 6.75%. The average stood at 5.81% the week before.
Borrowers looking for a private student loan can now benefit from a higher rate than they would have at this time last year. At the same time last year, the average fixed rate on a 10-year loan was 5.99%, 0.76% lower than the current rate.
If you were to fund $ 20,000 in student loans at the current average fixed rate, you would pay about $ 230 per month and about $ 7,558 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Last week, five-year variable student loan rates rose to 5.43% from 4.19% the week before.
Unlike fixed rates, variable interest rates fluctuate over the life of the loan. Variable rates can start off lower than fixed rates, especially during times when rates are generally low, but they can increase over time.
Private lenders often offer borrowers the option of choosing between fixed and variable interest rates. Fixed rates may be the safest bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it might be beneficial to choose a variable loan.
If you were to finance a five-year, $ 20,000 loan at a variable interest rate of 5.43%, you would pay about $ 381 on average per month. In total interest over the life of the loan, you would pay approximately $ 2,883. Of course, since the interest rate is variable, it can go up or down from month to month.
Related: How to get a private student loan
How to get a private student loan
If you meet or don’t qualify for federal student loan annual borrowing limits, private student loans may be a good option. But consider a federal student loan as your first option, as interest rates are generally lower. For example, the federal undergraduate student loan interest rate is 3.73% for the 2021-2022 school year. You will also benefit from more liberal repayment and forgiveness options with federal student loans.
Obtaining a private student loan usually involves applying directly to a non-federal lender, such as a bank, credit union, or online entity. You can also get a private student loan through a non-profit organization, government agency, or college.
It’s important to note that you’ll need a qualified co-signer if you have a limited credit history, as undergraduates often do.
When applying for a private student loan, consider the following:
- Your diplomas. Private student loans are credit-based. Lenders typically require a credit score in the top 600. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, by mail or by phone.
- Your choices. See what each lender is offering and compare the interest rate, term, future monthly payment, origination fees, and late fees. Also check to see if the lender offers a co-signer discharge so that the co-borrower can potentially opt out of the loan.
Buy private student loans
First, take a look at the overall cost of the loan. Consider both the interest rate and the fees. Also consider the type of help that each lender offers if you are unable to meet your payments.
If you have good or excellent credit, you have a better chance of getting the best interest rates.
Experts generally recommend that you borrow no more than what you will earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When you compare loans, determine how the loan will be disbursed and what costs it covers.
How lenders determine your rate
The rate you receive depends on whether you get a fixed or variable loan. Rates, in part, are based on your creditworthiness – those with higher credit scores often get the lower rates. But your rate is also based on other factors. Credit history, income, and even the degree you are working on and your career can play a role.