March 7, 2022 — Lending Rates Fall – Forbes Advisor
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Private 10-year fixed-rate student loan rates fell slightly last week. Despite the rise, if you want to get a private student loan, you can still get a relatively low rate.
The average fixed interest rate on a 10-year private student loan was 6.03% from February 28 to March 4. 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 4.49% 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 0.16% to 6.03%. The previous week, the average was 6.19%.
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 5.84%, 0.19% lower than the current rate.
A borrower financing $20,000 in private student loans at today’s average fixed rate would pay about $222 per month and about $6,681 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 4.04% to 4.49%.
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.
Financing a private loan of $20,000 over five years at 4.49% would yield a monthly payment of approximately $373. A borrower would pay $2,366 in total interest over the life of the loan. But the rate in this example is variable and it can go up or down each month.
Related: How to get a private student loan
How to get 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.
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.
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 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.
Remember that those with good or excellent credit usually get the best rates.
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.
How your interest rate is determined
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’re working on, and your career can also factor into the interest rate you receive.