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Last week, the average interest rate on refinanced student loans increased. Yet, for many borrowers, rates remain low enough to make refinancing a good option.

According to Credible.com, from August 9 to 13, the average fixed interest rate on a 10-year refinance loan was 3.46%. This is for borrowers with a credit score of 720 or higher who have prequalified on Credible.com’s student loan market. The average rate was 2.59% on a five-year variable rate loan.

Related: Best Student Loan Refinance Lenders

Fixed rate loans

The average fixed rate on 10-year refinance loans last week jumped 0.03% to 3.46%. The previous week the average was 3.43%.

Fixed interest rates do not fluctuate over the life of a borrower’s loan. This allows borrowers who are refinancing now to lock in at a much lower rate than they would have received around the same time last year. At the same time last year, the average fixed rate on a 10-year refinance loan was 4.23%, 0.77% higher than the current rate.

Let’s say you refinanced $ 20,000 in student loans at today’s average fixed rate. You would pay about $ 197 per month and about $ 3,688 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable rate loans

Average variable rates on five-year refinancing loans fell last week to 2.59% on average from 2.62%.

Unlike fixed rates, variable interest rates fluctuate over the life of a loan depending on market conditions and the index to which they are linked. Many refinance lenders recalculate the rates every month for borrowers with variable rate loans, but they usually limit the rate up to 18%, for example.

If you were to refinance an existing $ 20,000 loan into a five-year loan at a variable interest rate of 2.59%, you would pay around $ 356 on average per month. In total interest over the life of the loan, you would pay approximately $ 1,344. Of course, since the interest rate is variable, it can go up or down from month to month.

Related: Should You Refinance Student Loans?

When to refinance student loans

Lenders generally require that you complete your degree before refinancing. While it is possible to find a lender without this requirement, in most cases you will want to wait to refinance until you have graduated.

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

Using a co-signer is an option for those who do not have enough credit or income to qualify for a refinance loan. Alternatively, you can wait until your credit and income are stronger. If you do decide to use a co-signer, make sure they are aware that they will be responsible for the payments if you are unable to do so for some reason. The loan will also appear on their credit report.

It is important to make sure that you will save enough money when refinancing. While many borrowers with strong credit scores could benefit from refinancing at today’s interest rates, those with poorer credit will not benefit from the lowest rates available.

Do the math to see if refinancing will benefit your situation. Shop around for pricing, then figure out what you could save.

Student Loan Refinance Rate Comparison

For most borrowers, the primary motivation for refinancing student loans is to reduce the amount of interest they will pay. This means that choosing the lowest possible interest rate is a top priority.

Variable loan rates may initially be lower than fixed rate loan rates. Of course, because they are variable, they are subject to interest rate increases. You can limit the risk of rising interest rates with variable rate loans by paying off your loan as quickly as possible. Nonetheless, if you like the reliability of a fixed payment, then fixed rate loans might be a better choice.

Whether you choose a fixed or variable rate loan, it’s important to compare the rates of several lenders to make sure you don’t miss out on any savings. You may be able to benefit from interest rate reductions by opting for automatic payments or having an existing relationship with a lender.

Refinancing student loans: other things to consider

When you refinance federal student loans to a private loan, you will lose access to some of the benefits of federal loans. You will no longer have access to features such as:

If you’re thinking about refinancing federal student loans, first make sure that you probably won’t need to use any of these programs. This may be the case if your income is stable and you plan to pay off a refinance loan quickly. You still have the option of refinancing only your private loans, or only a portion of your federal loans. Since fixed interest rates on federal loans are usually quite low, you may also decide that refinancing would not lead to substantial savings.

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