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Student Loan Refinance Rates Drop to New All-Time Low

MoneyWise logo MoneyWise 27/10/2021 Noel Fletcher
Student Loan Refinance Rates Drop to New Low © Vincent B David / Shutterstock Student Loan Refinance Rates Drop to New Low

Digging out from a mountain of student debt could be a lot faster with lower 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 the borrowers are still paying down those loans 20 years after starting school.

Taking advantage of these lower interest rates on a refi can save a typical borrower thousands of dollars — while unloading that debt a whole lot quicker.

5-year variable-rate loans

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For borrowers looking to pay off student loans faster, five-year variable-rate loans were averaging 2.48% during the week of Oct. 18, according to the latest figures released by Credible marketplace.

That’s slightly down from last week’s 2.59% rate — and below the record low of 2.53% set for the term in late August.

This new all-time low shows just how far these rates have dropped, compared to a year ago when they sat at 3.20%.

The latest average is for borrowers with strong credit scores of at least 720. Even better rates are possible for people with excellent credit.

Borrowers with credit scores in the middle range (scores between 640 and 679) are averaging 4.59%.

Because variable rates fluctuate based on market conditions, borrowers could pay more later at the end of the five-year loan.

10-year fixed-rate loans

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For borrowers wanting to lock in a good deal, 10-year fixed-rate loans averaged 3.39% during the most recent survey week.

Figures for the week of Oct. 18 dipped slightly from 3.46% during the previous week.

This downward trend is near the all-time low of 3.36% that was set in September.

Better credit scores mean better rates. Those with crediting ratings between 640 to 679 have rates averaged at 4.77%.

A 10-year loan offers more affordable payments than a five-year one because there is more time to repay it, but you’ll spend more money overall due to the longer life of the loan.

How to get the best refi rate

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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-off, refinancing that student debt can 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 how good you are at paying your bills. Check your credit score for free and look for ways to improve it. You can get tips by using a free credit monitoring service and learn how to get rid of your other debts faster. That way, you’ll be a better candidate for lenders.

  • Set up auto-pay. You can often slightly reduce your interest rate by enrolling in auto-pay. Lenders like this because it makes sure they are paid on time each and every month.

  • Consider a co-signer. If your credit score is too low to qualify for a better rate, you may want to ask a friend or family member with good credit if they will co-sign your loan. Be careful though. Whoever co-signs will be stuck making your loan payments if you can’t afford them.

  • Compare your options. The student loan world is enormous — there are dozens and dozens of lenders. The only way to make sure you’re getting the best deal is to shop around. Always get multiple quotes. Different lenders are going to 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.

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