November 29, 2021 – Lending Rates Rise – Forbes Advisor
Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
The average interest rate on 10-year fixed-rate private student loans increased last week. For borrowers seeking private loans to fill the gaps to pay for higher education expenses, rates remain relatively low for borrowers with strong credit.
According to Credible.com, from November 22 to 26, the average fixed interest rate on a 10-year private student loan was 6.41%. It was 5.91% on a five-year variable rate loan. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market.
Related: Best private student loans
Fixed rate loans
The average fixed rate on 10-year loans increased last week from 0.01% to 6.41%. The previous week, the average stood at 6.40%.
Borrowers looking for a private student loan can now enjoy a higher rate than they would have at this time last year. At the same time last year, the average fixed rate on a 10-year loan was 6.08%, 0.33% lower than the current rate.
If you were to fund $ 20,000 in student loans at the current average fixed rate, you would pay about $ 226 per month and about $ 7,142 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
The average five-year variable student loan rate rose 2.38% last week. Now it sits at 5.91%.
Unlike fixed rates, variable interest rates fluctuate over the life of the loan. Variable rates can start off 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 five-year, $ 20,000 loan at a variable interest rate of 5.91%, you would pay about $ 386 on average per month. In total interest over the life of the loan, you would pay approximately $ 3,149. Of course, since the interest rate is variable, it can go up or down from month to month.
Related: How to get a private student loan
How to get a private student loan
If you meet or don’t qualify for federal student loan annual borrowing limits, private student loans may be a decent option. But consider a federal student loan as your first option, as interest rates are generally lower. For example, the federal undergraduate student loan interest rate is 3.73% for the 2021-2022 school year. You will also benefit from more liberal repayment and forgiveness options with federal student loans.
To get a private student loan, you will usually need to apply directly from a non-federal lender. You can find private student loans from banks, credit unions, and online entities. Nonprofits, government agencies, and colleges also offer loans.
It’s important to note that you’ll need a qualified co-signer if you have a limited credit history, as undergraduates often do.
When applying for a private student loan, consider the following:
- Your diplomas. Private student loans are credit-based. Lenders typically require a credit score in the top 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. See what each lender is offering 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 discharge so that the co-borrower can potentially opt out of the loan.
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 help that each lender offers if you are unable to make repayments on your loan.
Keep in mind that the best rates are only available for those with good or excellent credit.
How much should I borrow? Experts generally recommend that you borrow no more than what 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, find out from lenders how the loan is disbursed and what costs it will cover.
How lenders determine your rate
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 are working on, and your career can all factor into the interest rate you receive.