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The average interest rate on 10-year fixed-rate private student loans inched up last week. For many borrowers, that means rates continue to be low enough to make private student loans a decent option, especially if you have good credit.
From April 15 to April 20, the average fixed interest rate on a 10-year private student loan was 10.45% 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 7.75% among the same population, according to Credible.com.
These rates are accurate as of April 15, 2024.
Related: Best Private Student Loans
Fixed-rate Loans
Last week, the average fixed rate on a 10-year loan rose by 1.05% to 10.45%. The average stood at 9.40% the week prior.
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 9.05%, 1.40% lower than today’s rate.
If you were to finance $20,000 in student loans at today’s average fixed rate, you’d pay around $269 per month and approximately $12,317 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-rate Loans
The average rate on five-year variable student loans moved up by 0.36% last week. Now it sits at 7.75%.
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 7.75% would yield a monthly payment of approximately $403. A borrower would pay $4,188 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: How To Get A Private Student Loan
The Rate You’ll Receive
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.
Applying for 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.
Shopping for Private Student Loans
When shopping for a private loan, consider the overall cost of the loan, including interest rate and fees. You may also want to consider the type of assistance each lender offers if you’re not able to make your loan 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.