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Interest rates on refinanced student loans are mixed.
During the week of February 26, the average fixed interest rate on a 10-year refinance loan was 7.35% 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 6.90% among the same population, according to Credible.com.
These rates are accurate as of February 26, 2024.
Related: Best Student Loan Refinance Lenders
Fixed-Rate Loans
Last week, the average fixed rate on 10-year refinance loans declined by 0.29 percentage point to 7.35%. The week before, the average stood at 7.64%.
Fixed interest rates remain the same 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 6.75%, 0.60 percentage point lower than today’s rate.
Let’s say you refinanced $20,000 in student loans at today’s average fixed rate. You’d pay around $236 per month and approximately $8,301 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable-Rate Loans
Last week, rates on variable five-year refinance student loans moved up, reaching 6.90% from 6.24% the week before.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term according to market conditions and the financial index they’re tied to. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—to 18%, for instance.
Refinancing an existing $20,000 loan to a five-year loan at 6.90% interest would yield a monthly payment of approximately $395. A borrower would pay $3,705 in total interest over the life of the loan. But since the rate in this example is variable, it could go up or down from month to month within that time frame.
Related: Should You Refinance Student Loans?
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 in order 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.
Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with less-than-great credit who won’t receive the lowest fixed or variable interest rates may not. Start by exploring rates you could prequalify for via multiple lenders, then calculate your potential savings.
Refinancing Student Loans: What Else to Consider
A crucial caveat is that refinancing federal student loans to a private loan means you’ll lose many federal loan advantages, like income-driven repayment plans and generous deferment and forbearance options.
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.
Comparing Student Loan Refinancing Rates
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.
Variable rates typically start low, but 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 by having an existing financial account with a lender.
