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The average interest rate on 10-year fixed-rate private student loans fell last week. For many borrowers, that means rates continue to be low enough to make private student loans a decent option, especially if you have good credit.
From July 11 to July 15, the average fixed interest rate on a 10-year private student loan was 6.38% for borrowers with a credit score of 720 or higher who prequalified in the student loan market from Credible.com. On a five-year variable-rate loan, the average interest rate was 3.96% among the same population, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
The average fixed rate on 10-year loans last week stood at 6.38%, the same as the previous week.
Borrowers looking for a private student loan can now benefit from a lower 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 5.55%, or 0.83% higher than the current rate.
A borrower financing $20,000 in private student loans at today’s average fixed rate would pay about $226 per month and about $7,105 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Average variable rates on five-year loans fell last week to 3.96% on average from 3.96%.
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 3.96% would yield a monthly payment of approximately $368. A borrower would pay $2,078 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
Get a private student loan
Private student loans may be a good option if you reach the annual borrowing limits for federal student loans or do not qualify. You should consider a federal student loan as your first option, as interest rates are generally lower and you’ll have more liberal repayment and forgiveness options than with a private loan.
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 get a private student loan through a nonprofit organization, state agency, or college.
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 over 600. That’s why having a co-signer can be especially beneficial.
- Apply directly through 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.
Comparison of 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.
Keep in mind that the best rates are only available to those with good or excellent credit.
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.
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’re working on, and your career can also factor into the interest rate you receive.