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Interest rates on refinanced student loans are moving up.
During the week of April 1, the average fixed interest rate on a 10-year refinance loan was 9.53% 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 8.42% among the same population, according to Credible.com.
These rates are accurate as of April 1, 2024.
Related: Best Student Loan Refinance Lenders
Fixed-Rate Loans
The average fixed rate on 10-year refinance loans last week rose by 2.16 percentage points to 9.53%. The week before, the average stood at 7.37%.
At this time last year, the average fixed rate on a 10-year refinance loan was 7.01%, or 2.52 percentage points lower than today’s rate. That means that borrowers who refinance now have the chance to lock in a new rate that’s higher than what they would have received this time last year.
If you were to refinance $20,000 in student loans to today’s average fixed rate, you’d pay around $259 per month and approximately $11,095 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 refinance loans moved up by 1.17% last week. Now it sits at 8.42%.
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 8.42%. You’d pay about $410 on average per month. You’d pay approximately $4,574 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.
While variable rates may start out low, they could rise in the future, making them a gamble. But one way to limit your risk exposure is to pay off your new refinance loan as fast as possible. Choose as short a loan term as you can manage, and pay extra when you can. This will help you pay off your loan quicker and avoid potential rate increases in the future.
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.
The Right Time To 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 you’ll need a good or excellent credit score to get 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.
It’s important to make sure you’ll save enough money when refinancing. While many borrowers with solid credit scores could benefit from refinancing at today’s interest rates, those with poorer credit won’t receive the lowest rates available.
Do the math to see if refinancing will benefit your situation. Shop around for rates and then calculate what you could save.
Refinancing Federal Loans to Private Loans
When you refinance federal student loans to a private loan means you’ll lose access to some federal loan benefits. You’ll no longer have access to features like:
You may not need these programs if you have a stable income and plan to pay off your loan quickly.
If you do need the benefits of those programs, you could refinance only your private loans, or just a portion of your federal loans.