With student loan rates as low as 2%, here’s how to refinance on better terms

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Average interest rates for refinancing a private student loan remain low, but you may qualify for an even better rate by doing your research. (iStock)

According to data from Credible, private student loan rates have fallen to all-year 2021 lows in recent weeks, giving borrowers the opportunity to lock in a lower rate to pay off their college debt.

The average refinance rate for 10-year fixed-rate loans was 3.39% for qualified borrowers who used Credible’s marketplace during the week of October 18. The 5-year variable rate loan rates were even lower, averaging 2.48% over the same period.

4 PRIVATE STUDENT LOAN TIPS FOR UNDERGRADUATE STUDENTS

Although these average rates are already quite low, it may be possible to get an even better rate on refinancing a student loan. Some lenders offer 5-year variable rates as low as about 2% or even less.

But just because you can get a lower rate on your student debt doesn’t mean it’s always recommended. For example, refinancing your federal loans to a private loan would make you ineligible for government benefits such as Income-Based Repayment Plans (IDRs), COVID-19 Administrative Forbearance, and some federal student loan exemption programs. such as Public Service Loan Forgiveness (PSLF).

However, private student loan borrowers do not have access to these programs, so you have nothing to lose by refinancing at a lower rate. Keep reading to find out how you can get the lowest possible student loan refinance rate for your unique situation.

When you are ready to refinance your student loans, visit Credible to compare the rates of several lenders at once.

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How To Get A Low Student Loan Refinance Rate

Refinancing your current loan to a new loan at a better rate can help you lower your monthly payments, pay off debt faster, and save money on interest over the life of the loan. The lower the rate you can get, the better your repayment options will be. Here are some tips for getting a low student loan refinance rate:

Consider each strategy in the sections below.

WHAT IS A STUDENT LOAN INCOME CONTINGENT REPAYMENT PLAN?

Take a tour of several student lenders

While federal student loan rates depend on the year in which you borrowed them, private student loan rates vary based on a number of factors. Lenders determine eligibility and set interest rates by looking at the term and amount of the loan, as well as the borrower’s credit history.

This is why it is so important to shop around with multiple lenders to make sure you are getting the lowest possible rate for your situation. Many private student loan lenders allow you to prequalify with flexible credit to see your estimated interest rate without affecting your credit score. This way, you can choose the lender who offers you the best deal.

You can contact private student lenders individually, or you can get prequalified through multiple lenders at once in Credible’s online marketplace. Browse interest rates from real private lenders in the rate table below.

HOW STUDENT LOANS AFFECT YOUR DEBT / INCOME RATIO

Consider different repayment terms

Shorter repayment terms tend to be accompanied by lower interest rates, and vice versa. This can help you save money on interest over time since you pay off the loan faster. However, a shorter repayment term will come with higher monthly payments, so this is not recommended if you are trying to keep your monthly costs down.

You can also benefit from a lower rate by opting for a variable rate loan. While fixed rate loans have the same interest rate for the life of the loan, variable interest rates can change over time.

Since interest rates are low right now, variable rates are also low. But your lender can raise (or lower) your interest rate over time due to larger economic factors that are beyond your control. This is why many borrowers choose fixed interest rate student loans. But since private lenders can’t charge fees like origination fees or prepayment penalties, you would have nothing to lose by refinancing again if interest rates were to rise.

Use a student loan refinance calculator to see how choosing a shorter term or variable rate loan can impact the total interest paid over time.

FSA PREPARES FOR ‘UNPRECEDENTED TASK’ OF RESUMING FEDERAL STUDENT LOAN PAYMENTS

Use a creditworthy co-signer

A good credit score can help you meet a lender’s eligibility criteria and earn the lowest possible interest rate on a number of financial products, including student loans. On the other hand, having bad credit can prevent you from getting a low student loan refinance rate.

If your credit is bad or fair, consider hiring a co-signer with a good credit rating. However, a co-signer shares the responsibility for repaying the loan. Therefore, only seek help from a co-signer if you are confident that you can make the monthly payments.

You can read more about refinancing private student loans and see your estimated interest rates for free on Credible.

Despite ongoing forgiveness talks, student loan borrowers should prepare for the end of the postponement

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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