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The average interest rate on 10-year fixed-rate private student loans fell last week. For borrowers looking for private loans to fill gaps to pay higher education expenses, rates remain relatively low for borrowers with strong credit.
From October 24 to 29, the average fixed interest rate on a 10-year private student loan was 7.68% 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 7.05% 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 0.40% to 7.68%. The previous week, the average was 8.08%.
Borrowers looking for a private student loan can now qualify for a higher rate than they would have at this time last year. This time last year, the average fixed rate on a 10-year loan was 6.75%, 0.93% lower than the current rate.
A borrower financing $20,000 in private student loans at the current average fixed rate would pay about $239 per month and about $8,714 in total interest over 10 years, according to Forbes Advisor Student Loan Calculator.
Variable rate loans
Last week, the average five-year variable student loan rate fell to 7.05% on average from 8.37%.
Unlike fixed rates, variable interest rates fluctuate during a loan term. 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 7.05%, you would pay about $397 on average per month. In total interest over the term of the loan, you would pay approximately $3,790. 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
The price you will receive
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.
How to get 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.
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.
If you are an undergraduate student with a limited credit history, you will usually need to apply with a co-signer who can meet the borrowing requirements of the lender.
Here’s what to consider when applying for a private student loan:
- Make sure you qualify. Private student loans are credit-based, and lenders typically require a credit score in the 600s. That’s why having a co-signer can be especially beneficial.
- Apply directly to lenders. You can apply directly on the lender’s website, by mail or by phone.
- Compare your options. 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.
