Student Loan Refinance Rates: October 31, 2022—Loan Rates Rise

Student Loan Refinance Rates: October 31, 2022—loan Rates Rise
Getty

Rates on refinanced student loans moved up last week. Despite the rise, if you’re interested in refinancing your student loans, you can still get a relatively low rate.

For borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace from October 24 to October 29, the average fixed interest rate on a 10-year refinance loan was 5.74%. On a five-year variable-rate loan, the rate was 3.31%, according to Credible.com.

Related:  Best Student Loan Refinance Lenders

Fixed-rate Loans

Last week, the average fixed rate on a 10-year refinance loan rose by 0.06% to 5.74%. The average stood at 5.68% the week prior.

At this time last year, the average fixed rate on a 10-year refinance loan was 3.44%, or 2.30% lower than today’s rate. That means that borrowers who refinance now have the chance to lock in a rate that’s considerably lower than they would have received at this time last year.

A borrower who refinances $20,000 in student loans to today’s average fixed rate would pay around $219 per month and approximately $6,333 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable-rate Loans

Last week, rates on variable five-year refinance student loans moved up, reaching 3.31% from 3.19% the week prior.

In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term according to market conditions and the index they’re tied to. Many refinance lenders recalculate rates monthly for borrowers with variable-rate loans, but they typically limit how high the rate can go—to 18%, for instance.

Let’s say you refinanced an existing $20,000 loan to a five-year loan with a variable interest rate of 3.31%. You’d pay about $362 on average per month. You’d pay approximately $1,728 in total interest over the life of the loan. Keep in mind that since the interest is variable, it could fluctuate up or down from month to month.

Related: Should You Refinance Student Loans?

The Right Time To Refinance Student Loans

Lenders generally require you to complete your degree before refinancing. Though it’s possible to find a lender without this requirement, in most cases, you’ll want to wait to refinance until after you’ve graduated.

Keep in mind that to get the lowest interest rates, you’ll need a good or excellent credit score.

Using a co-signer is one option for those who don’t have strong enough credit or income to qualify for a refinance loan. Alternatively, you could wait until your credit and income are stronger. If you decide to use a co-signer, make sure they’re aware that they’ll be responsible for payments if you’re not able to for some reason. The loan will also appear on their credit report.

Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with less-than-great credit who won’t receive the lowest fixed or variable interest rates may not. Start by exploring rates you could prequalify for via multiple lenders, then calculate your potential savings.

Refinancing Federal Loans to Private Loans

There are a few things to keep in mind when refinancing a federal student loan into a private student loan. To begin, you’ll lose access to some benefits that federal student loans offer. For instance, you’ll no longer have access to income-driven repayment plans or deferment and forbearance options.

You may not need these programs if you have a stable income and plan to pay off your loan quickly. But make sure you won’t need these programs if you’re thinking about refinancing federal student loans.

If you do need the benefits of those programs, you could refinance only your private loans or just a portion of your federal loans.

Comparing Student Loan Refinancing Rates

Refinancing a student loan at the lowest possible interest rate is one of the best ways to reduce the amount of interest you’ll pay over the life of the loan.

Variable rates typically start low, but they could rise in the future, making them a gamble. But one way to limit your risk exposure is to pay off your new refinance loan as fast as possible. Choose as short a loan term as you can manage, and pay extra when possible so that you’re not subject to potential rate increases in the future.

When considering your options, compare rates across multiple student loan refinancing lenders to ensure you’re not missing out on possible savings. Explore whether you qualify for additional interest rate discounts, potentially by choosing automatic payments or by having an existing financial account with a lender.

More from Forbes Advisor