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The average interest rate on 10-year fixed-rate private student loans rose last week. For borrowers looking for private loans to fill gaps to pay for higher education expenses, rates remain relatively low for borrowers with strong credit.
For borrowers with a credit score of 720 or higher who prequalified in Credible.com’s student loan marketplace from April 18 to April 22, the average fixed interest rate on a 10-year private student loan was 6.25%. On a five-year variable-rate loan, the rate was 4.74%, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
The average fixed rate on 10-year loans last week rose 0.86% to 6.25%. The previous week, the average was 5.39%.
Borrowers looking for a private student loan can now qualify for a higher 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 5.85%, or 0.40% lower than the current rate.
If you were to fund $20,000 in student loans at today’s average fixed rate, you’d pay about $225 a month and about $6,947 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
The average five-year variable student loan rate rose 0.63% last week. It now stands at 4.74%.
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 4.74%, you would pay about $375 on average per month. In total interest over the term of the loan, you would pay approximately $2,503. 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
Apply for a private student loan
Before turning to a private student loan, consider a federal student loan as your first option. Interest rates on federal student loans are generally lower – for example, for the 2021-2022 school year, the federal undergraduate student loan interest rate is 3.73%. Federal student loans also tend to have much more generous repayment and forgiveness options. Still, if you’ve reached federal student loan borrowing limits or don’t qualify, private student loans may be a good solution.
To obtain a private student loan, you will usually need to apply directly with a non-federal lender. You can find private student loans from banks, credit unions, and online entities. Nonprofit organizations, state agencies, and colleges also offer loans.
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 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.
Remember that those with good or excellent credit usually get the best 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.
How lenders determine your rate
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.