January 31, 2022 — Lending Rates Fall – Forbes Advisor
Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
Private 10-year fixed-rate student loan rates fell last week. If you want to take out a private student loan, you can still get a relatively low rate.
From January 24 to 28, the average fixed interest rate on a 10-year private student loan was 5.98% for borrowers with a credit score of 720 or higher who prequalified in the student loan market of Credible.com. On a five-year variable-rate loan, the average interest rate was 4.77% among the same population, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
Last week, the average 10-year fixed rate fell 0.77% to 5.98%. The previous week, the average was 6.75%.
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 6.61%, or 0.63% higher than the current rate.
Let’s say you funded $20,000 in student loans at today’s average fixed rate. You’d pay about $222 a month and about $6,621 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year loans rose last week from an average of 3.82% to 4.77%.
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 4.77%, you would pay about $375 on average per month. In total interest over the term of the loan, you would pay approximately $2,519. 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
How to Compare Private Student Loans
When comparing private student loan options, take a close look at the overall cost of the loan. This includes the interest rate and fees. It’s also important to consider the type of help the lender offers if you can’t afford your payments.
Keep in mind that the best rates are only available to those with good or excellent credit.
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.
How to get a private student loan
Private student loans may be a good choice if you meet the annual borrowing limits for federal student loans or do not qualify. 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.
When shopping for a private student loan, you will usually need to apply directly with a non-federal lender. This includes banks, credit unions, nonprofits, state agencies, colleges, and online entities.
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.
When applying for a private student loan, consider the following:
- Your qualities. Private student loans are credit-based. Lenders typically require a credit score above 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. Look at what each lender offers 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.
How your interest rate is determined
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 role.