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Private 10-year fixed-rate student loan rates fell last week. Despite the rise, if you want to get a private student loan, 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 August 8-13, the average fixed interest rate on a 10-year private student loan was $6 .97%. On a five-year variable-rate loan, the rate was 4.97%, according to Credible.com.
Related: Best Private Student Loans
Fixed rate loans
Last week, the average 10-year private student loan fixed rate fell 0.07% to 6.97%. The previous week, the average was 7.04%.
Borrowers looking for a private student loan can now qualify for 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 5.38%, 1.59% lower than the current rate.
A borrower financing $20,000 in private student loans at today’s average fixed rate would pay about $232 per month and about $7,829 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.
Variable rate loans
Last week, five-year variable student loan rates rose to 4.97% from 4.87% the previous week.
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.
Let’s say you financed a loan of $20,000 over five years with a variable interest rate of 4.97%. You would pay around $377 on average per month. You would pay approximately $2,629 in total interest over the life of the loan. Keep in mind that since interest is variable, it can fluctuate up or down from month to month.
Related: How to Get a Private Student Loan
Shop for Private Student Loans
First look at the overall cost of the loan. Consider both the interest rate and the fees. Also, look at the type of help each lender offers if you are unable to pay your payments.
If you have good or excellent credit, you are more likely to get the best interest rates.
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.
Get a private student loan
Before turning to a private student loan, consider a federal student loan as your first option. Interest rates on federal student loans are generally lower. Federal student loans also tend to have much more generous repayment and forgiveness options. Still, if you’ve reached federal student loan borrowing limits or don’t qualify, private student loans may be a good solution.
When shopping for a private student loan, you will usually need to apply directly with a non-federal lender. This includes banks, credit unions, nonprofits, state agencies, colleges, and online entities.
Keep in mind that undergraduate students with limited credit histories often need 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 to lenders. You can apply directly on the lender’s website, by mail or by phone.
- Compare your options. Look at 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 release so that the co-borrower can potentially opt out of the loan.
How your interest rate is determined
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.