For 10-year fixed-rate loans, the average student loan refinance rate was 5.01%, up slightly from the previous week, and average 5-year variable-rate loan rates increased slightly to reach 4.01%, according to the latest rates from Credible for the week ending May 15. Of course, your rate will depend on your finances and credit score, and you can see the lowest student loan refinance rates you could qualify for here.
When you refinance a student loan, you are essentially taking out a new loan to pay off the existing loan. But why bother to take out a whole new loan? Well, for one thing, you might be able to take advantage of better rates and terms. Still, lower rates aren’t always reason enough to refinance a student loan, especially if the borrower has federal loans.
Indeed, federal student loan borrowers should think long and hard about refinancing because when refinancing a federal student loan, a borrower converts their federal loan into a private loan. And once you’ve converted a federal loan to a private loan, you can never change it again. This means the borrower loses all of the federal protections that once came with their loan, including things like income-contingent repayment tools and some loan forgiveness options. Right now, with pandemic-related payment and interest suspensions in effect on federal loans, a borrower probably wouldn’t want to defer a federal loan.
Since private student borrowers do not have these protections, they will not lose these protections when refinancing, and in fact, refinancing can significantly reduce payments or loan terms. If you’re seeing lower rates, your credit score has improved, or you’re making more money than when you last refinanced your loan, refinancing can be a great way to save money. money every month. Another thing to consider, if you have the funds available, is to adjust the terms of your loan, as shortening your repayment period will save you money in the long run, even if your monthly payments increase accordingly.
Marketwatch Picks has put together a guide with 5 questions you should ask yourself during the refinance process, if you’re still not sure if it’s the right decision for you. To see how much you can save when refinancing student loans, this Marketwatch Picks guide can help you get started.
*Prices correct at time of publication.