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The average 10-year fixed rate private student loan interest rate fell last week. For borrowers seeking private loans to fill the gaps to pay for higher education expenses, rates remain relatively low for borrowers with strong credit.
The average fixed interest rate on a 10-year private student loan was 5.61% from September 13 to 17. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market. The average interest rate on a five-year adjustable rate loan was 3.19% among the same population, according to Credible.com.
Related: Best private student loans
Fixed rate loans
The average fixed rate on 10-year private student loans fell last week from 0.50% to 5.61%. The previous week the average was 6.11%.
Borrowers looking for a private student loan can now benefit from a lower 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 6.45%, 0.84% higher than the current rate.
If you were to fund $ 20,000 in student loans at the current average fixed rate, you would pay about $ 218 per month and about $ 6,177 in total interest over 10 years, according to the Forbes Advisor student loan calculator.
Variable rate loans
Last week, five-year variable student loan rates rose to 3.19% from 3.12% 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 3.19%, you would pay about $ 361 on average per month. In total interest over the life of the loan, you would pay approximately $ 1,664. 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 lenders determine your rate
Lenders offering private student loans generally offer fixed and variable interest rates. These rates are, in part, based on your creditworthiness. Generally, the higher your credit score, the lower the interest rate you will receive. But credit history, income, the degree you are working on, and your career can all factor into the interest rate you receive.
How to get a private student loan
Private student loans can be a good option if you meet or don’t qualify for federal student loan annual borrowing limits. You should consider a federal student loan as your first option, as interest rates are generally lower and you will have more liberal repayment and forgiveness options than with a private loan. For example, the federal undergraduate student loan interest rate is 3.73% for the 2021-2022 school year.
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.
Keep in mind that undergraduates with limited credit histories often need a co-signer who can meet the lender’s borrowing requirements.
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
When you compare private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It is also important to consider the type of help the lender is offering if you cannot afford your payments.
If you have good or excellent credit, you have a better chance of getting the best interest rates.
How much should I borrow? Experts generally recommend that you borrow no more than what you will 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 looking for a loan, find out from lenders how the loan is disbursed and what costs it will cover.