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Rates on 10-year fixed-rate private student loans rose last week. Despite the rise, if you’re interested in getting 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 7.16% from August 15 to August 20. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 4.82% among the same population, according to Credible.com.
Related: Best Private Student Loans
The average fixed rate on 10-year loans last week rose by 0.19% to 7.16%. The week prior, the average stood at 6.97%.
Borrowers in the market for a private student loan now can receive 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 5.95%, 1.21% lower than today’s rate.
A borrower who finances $20,000 in private student loans at today’s average fixed rate would pay around $234 per month and approximately $8,064 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Average variable rates on five-year loans moved down last week by 0.15%, falling to 4.82%.
In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.
Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.
Financing a $20,000 five-year private loan at 4.82% would yield a monthly payment of approximately $376. A borrower would pay $2,547 in total interest over the life of the loan. Keep in mind that since the interest rate is variable, it could change monthly.
Related: How To Get A Private Student Loan
How Lenders Determine Your Rate
The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.
Applying for a Private Student Loan
Before you look to a private student loan, consider a federal student loan as your first option. The interest rates on federal student loans are generally lower. Federal student loans also tend to have far more generous repayment and forgiveness options. Yet, if you’ve reached the borrowing limits for federal student loans or if you’re ineligible for them, private student loans can be a good solution.
Getting a private student loan generally involves applying directly through a non-federal lender, such as a bank, credit union or online entity. You may also be able to get a private student loan through a nonprofit organization, state agency or college.
It’s important to note that you’ll need a qualified co-signer if you have limited credit history, as undergraduates often do.
When applying for a private student loan, take into consideration the following:
- Your qualifications. Private student loans are credit-based. Lenders typically require a credit score in the higher 600s. This is where having a co-signer can be particularly beneficial.
- Where to apply. You can apply directly on the lender’s website, via mail or over the phone.
- Your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
Comparing Private Student Loans
First, take a look at the loan’s overall cost. Consider both interest rate and fees. Also, look at the type of help each lender offers if you’re not able to afford 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 borrowing no more than you’ll 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 you’re shopping around for a loan, take to lenders about how the loan is disbursed and what costs it will cover.