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Last week, the average interest rate on private 10-year fixed-rate student loans fell slightly. This rate cut is good news for borrowers seeking private student loans to fill a gap in college funding.
According to Credible.com, from May 9 to May 6, the average fixed interest rate on a 10-year private student loan was 5.56%. It was 4.34% on a five-year variable rate loan. This is for borrowers with a credit score of 720 or higher who have prequalified in Credible.com’s student loan marketplace.
Related: Best Private Student Loans
Fixed rate loans
Last week, the average 10-year private student loan fixed rate fell from 0.47% to 5.56%. The previous week, the average was 6.03%.
Borrowers looking for a private student loan can now qualify for a lower 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 6.34%, or 0.78% higher than the current rate.
If you were to fund $20,000 in student loans at today’s average fixed rate, you’d pay about $218 a month and about $6,118 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Last week, the average five-year variable student loan rate fell to 4.34% on average from 5.23%.
Unlike fixed rates, variable interest rates fluctuate over the term of the loan. Variable rates can start 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 $20,000 five-year loan at a variable interest rate of 4.34%, you would pay about $371 on average per month. In total interest over the term of the loan, you would pay approximately $2,284. Of course, since the interest rate is variable, it can fluctuate up or down from month to month.
Related: How to get a private student loan
The price you will receive
The rate you receive varies depending on whether you get a fixed or variable loan. Rates are partly based on your creditworthiness – those with higher credit scores often get the lowest rates. But your rate is also based on other factors. Credit history, income, and even the degree you’re working on and your career can all play a part.
Get a private student loan
Private student loans can be a decent option if you reach the annual borrowing limits for federal student loans or are not eligible. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll have more liberal repayment and forgiveness options than with a private loan. For example, the federal student loan interest rate for undergraduates is 3.73% for the 2021-22 school year.
Obtaining a private student loan usually involves applying directly through a non-federal lender, such as a bank, credit union, or online entity. You may also be able to obtain a private student loan through a nonprofit organization, state agency, or college.
It is important to note that you will need a qualified co-signer if you have a limited credit history, as undergraduate students 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 over 600. That’s why having a co-signer can be especially beneficial.
- Apply directly through lenders.You can apply directly on the lender’s website, by mail or by phone.
- Compare your options.Look at 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 release so that the co-borrower can potentially opt out of the loan.
Shop for Private Student Loans
When shopping for a private loan, consider the overall cost of the loan, including the interest rate and fees. You can also consider the type of assistance each lender offers if you are unable to make your loan payments.
If you have good or excellent credit, you are more likely to get the best interest rates.
Experts generally recommend that you don’t borrow more than you will earn in your first year of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, determine how the loan will be disbursed and what costs it will cover.