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The average interest rate on 10-year fixed-rate private student loans fell last week. For many borrowers, that means rates continue to be low enough to make private student loans a decent option, especially if you have good credit.
The average fixed interest rate on a 10-year private student loan was 7.18% from September 12 to September 17. This is for borrowers with a credit score of 720 or higher who have prequalified in Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 7.81% 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 0.45% to 7.18%. The previous week, the average was 7.63%.
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 5.61%, 1.57% lower than the current rate.
A borrower financing $20,000 in private student loans at today’s average fixed rate would pay about $234 per month and about $8,089 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 5.88% to 7.81%.
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.
Let’s say you financed a loan of $20,000 over five years with a variable interest rate of 7.81%. You would pay around $404 on average per month. You would pay approximately $4,223 in total interest over the life of the loan. Keep in mind that since interest 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
First, look at the overall cost of the loan. Consider both the interest rate and the fees. Also, look at the type of help each lender offers if you are unable to pay your payments.
Keep in mind that the best rates are only available to those with good or excellent credit.
How much should you borrow? Experts generally recommend not borrowing more than 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 shopping for a loan, let lenders know how the loan is disbursed and what costs it will cover.
Apply for a private student loan
If you meet the annual borrowing limits for federal student loans or don’t qualify, private student loans may be a good choice. But consider a federal student loan as your first option since interest rates are generally lower. You will also benefit from more liberal repayment and forgiveness options with federal student loans.
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.
Keep in mind that undergraduates with limited credit histories often need a co-signer who can meet the borrowing requirements of the lender.
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 part.