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

The average home student loan refinance rates stay low, but you can qualify for an even better rate through your research. (iStock)

Private student loan interest rates have dropped to their lowest levels in all of 2021 in the past few weeks, according to Credible data, giving borrowers the option to set a lower interest rate to repay their college debt.

The average refinance rate for 10-year fixed-rate loans was 3.39% for qualified borrowers who used Credible’s marketplace in the week of October 18 for the same period.

4 TIPS FOR STUDENTS ON PRIVATE STUDY LOANS

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

But just because you can get a lower interest rate on your student loan debt doesn’t mean it is always advisable. For example, if you refinance your federal loan into a private loan, you will not be eligible for government benefits like Income Driven Repayment Plans (IDR), COVID-19 administrative debt, and certain federal student loan programs like Public Service Loan Forgiveness (PSLF).

However, private borrowers do not have access to these programs so you have nothing to lose if you refinance at a lower interest rate. Read on to learn how to set the lowest possible student loan refinance rate for your unique situation.

When you’re ready to refinance your student loans, visit Credible to compare the interest rates of multiple lenders at the same time.

12 Lenders To Consider When Consolidating Student Loans

How to Get a Low Refinance Rate on Student Loans

Refinancing your current loan into a new loan with a better interest rate can help you reduce your monthly payments, pay off your debt faster, and save money on interest over the life of the loan. The lower the interest rate, the better your repayment options. Here are a few tips to get a low student loan refinancing rate:

Consider each strategy in the following sections.

WHAT IS A CONTINUOUS REPAYMENT PLAN FOR STUDENT LOANS?

Shop for student loans from multiple lenders

While federal student loan interest rates vary based on the year of the borrowing, personal student loan interest rates vary based on a number of factors. Lenders determine eligibility and set interest rates by looking at the loan duration and amount, as well as the borrower’s loan history.

This is why it is so important to check with multiple lenders to make sure you are getting the lowest interest rate for your situation. Many private student loan lenders allow you to prequalify yourself with a soft credit pull to see your estimated interest rate without affecting your credit score. This way, you can choose the lender who can offer you the best terms.

You can contact private lenders for student loans individually or pre-qualify through multiple lenders at the same time on the Credible online marketplace. Search the real private lender interest rates in the interest table below.

HOW STUDENT LOANS AFFECT YOUR DEBT INCOME

Take into account different repayment conditions

Shorter repayment periods usually go hand in hand with lower interest rates and vice versa. This can help you save money on the interest over time as you will pay off the loan faster. However, a shorter term will result in higher monthly payments, so this is not recommended when trying to cut your monthly costs.

You may also be able to get a lower interest rate by opting for a floating rate loan. While fixed rate loans have the same interest rate over the life of the loan, the floating rate may change over time.

Since interest rates are currently low, floating rates are also low. But your lender may increase (or decrease) your interest rate over time due to larger economic factors beyond your control. Because of this, many borrowers choose a fixed rate student loan. Since private lenders cannot charge any fees such as manufacturing fees or early repayment penalties, if interest rates rise you have nothing to lose by refinancing again.

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

FSA IS PREPARING FOR THE ‘EXAMPLES’ OF RESUME PAYMENTS FOR FEDERAL STUDENT LOANS

Get the help of a creditworthy co-signer

Good credit can help you meet a lender’s eligibility requirements and set the lowest possible interest rate on a range of financial products, including student loans. On the other hand, poor creditworthiness can deter you from getting a low refinance rate on student loans.

If you have poor or fair credit, consider hiring a cosigner with good credit. However, a co-signer has joint responsibility for repaying the loan, so only ask a co-signer for help if you are sure you will be able to make the monthly payments.

You can learn more about home student loan refinancing and see your free estimated interest rates on Credible.

DESPITE AWARD TALKS, STUDENT CREDITORS SHOULD PREPARE FOR THE END OF THE BREAKDOWN

Do you have a question about finance but don’t know who to contact? Send an email to the credible money expert at moneyexpert@credible.com and your question could be answered by Credible in our Money Expert section.

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