Digging out from a mountain of student debt could be a lot faster now, thanks to cheaper rates on a money-saving refinance.
Student loan refinance rates have fallen drastically for both five-year and 10-year loans, according to new figures from a major loan marketplace. And some refi rates have hit a new all-time low.
Currently, 45.3 million borrowers have student loan debt, notes the research site EducationData.org. And half of borrowers are still paying down their loans 20 years after starting school.
Taking advantage of today's lower interest rates on a refi can save a typical borrower thousands of dollars — and help unload that debt more quickly.
5-year variable-rate loans
For borrowers looking to pay off student loans faster, five-year variable-rate refinance loans dropped to an average 2.48% during the week of Oct. 18, according to figures released this week. That's a new record low for the refi rates tracked by the Credible marketplace.
The previous all-time low was 2.53%, set in late August. Rates fell last week from the previous week's average of 2.59%. One year earlier, the typical rate was a higher 3.20%.
The average rate is specifically for borrowers with good credit scores of at least 720. Even better rates are possible for people with exceptional credit of 780 or above.
Borrowers with so-so credit scores (between 640 and 679) land stiffer rates, averaging 4.59%.
Because variable rates fluctuate based on market conditions, borrowers could find themselves paying even more as their loan term progresses.
10-year fixed-rate loans
For borrowers wanting to lock in a good deal, 10-year fixed-rate loans averaged 3.39% last week, according to the data. That was down from 3.46% the previous week.
Rates are now close to the all-time low average of 3.36% set in September.
Better credit scores mean better rates. But borrowers with only "fair" scores of between 640 to 679 are getting less favorable rates averaging 4.77%.
A 10-year loan offers more affordable payments than a five-year because because you have more time to repay the money, but you’ll spend far more money on interest due to the longer life of the loan.
How to get the best refinance rate
If you have a federal student loan, make sure you know what you’re giving up before you make the move to a refi.
When you switch from a government loan to a private one, you’ll be ineligible for the government support some borrowers have enjoyed during the pandemic, including payment freezes, interest waivers and even loan forgiveness.
If you already have a private loan or don’t mind the trade-offs, refinancing your student debt could make a big difference in your budget.
Here are some tips to help you grab the best possible rate.
Raise your credit score. Lenders factor in your credit score to decide if you're a good risk for a refinance loan. Check your credit score for free and look for ways to improve it. You can get tips by using a free credit monitoring service, which can show how you can get rid of other debts faster.
Set up auto-pay. Many lenders will chip a small percentage off your interest rate if you enrolled in auto-pay. It ensures that they'll get paid on time every month.
Consider a co-signer. If your credit score is too low to qualify for a better interest rate, you may want to ask a friend or family member with good credit to co-sign your loan. But be careful, because your co-signer will be stuck making your loan payments if you can’t afford them.
Compare your options. The student loan world is enormous, and the only way to be certain you’re getting the best deal is to shop around. Always get rate quotes from multiple lenders, because different lenders will weigh factors in your application differently. Compare the terms of each offer before you click “Apply.”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.