Other Student Loan Refinancing Features To Consider
There are a few things to keep in mind when refinancing a federal student loan into a private student loan. To begin, youll lose access to some benefits that federal student loans offer. For instance, youll no longer have access to income-driven repayment plans or deferment and forbearance options.
If youre thinking about refinancing federal student loans, first make sure you likely wont need to use any of these programs. This may be the case if your income is stable and you plan to quickly pay off a refinance loan. You always have the option to refinance only your private loans, or only a portion of your federal loans. Since federal loans fixed interest rates are typically quite low, you may also decide refinancing wouldnt lead to substantial savings.
Best Interest Rate For Student Loans
Its true that student loans can be a little bit of a hassle, but theyre also super important.
If youre not careful, you could end up paying way more than you need to, which would be a shameespecially since there are so many companies out there claiming to offer the best interest rate for student loans.
But how do you know which ones are telling the truth? How do you know which ones are just trying to take advantage of your lack of knowledge?
If you want to find out what the best interest rate for student loans really is and make sure that youre getting the most competitive deal possible, then read on!
Other Noteworthy Interest Rate Changes
In the mid-length loans, specifically those at 7, 10, or 15 years in duration, Splash and ELFI perform strongly.
For our overall rankings and lender reviews, be sure to check out our Student Loan Rankings page. For a complete breakdown by loan type for all loan lengths, head over to our student loan refinance rates table.
Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.
Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.
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Whats Next: Apply For A Private Student Loan
If federal student loans arent enough to cover your college costs, private student loans can be an option to consider. Generally, private lenders will allow students to borrow up to the cost of attendance, less any other financial aid theyve received.
If you are interested in a private student loan, consider SoFi. Private student loans with SoFi have no fees, offer competitive interest rates to qualifying borrowers, and becoming a SoFi member qualifies you for other member-perks like career-coaching.
Variable Rate Student Loans Are Riskier But Cheaper
Many lenders offer both variable and fixed rate student loans. Variable rate loans interest rates may change over the life of the loan , whereas fixed rate loans interest rates do not change. In our post Variable vs Fixed Rate Student Loans, we weigh the pros and cons of each type.
The bottom line is that the advertised rates for variable rate programs are always lower than fixed rate programs. The key factor is that when you choose a variable rate, you are essentially betting that your interest rate will not increase substantially over the course of repayment. Be sure to read our post and decide if you are comfortable with taking a risk with a variable rate loan or would rather choose a fixed rate but know that your rate wont change.
All of our other tips still apply to fixed rate programs, so be sure to follow them even if you choose a fixed rate loan.
All of this may sound really complicated and time consuming. We wont lie, it is. However, its worth the effort when so much money is at stake. Remember, borrow only what you really need and be sure to utilize your full eligibility for federal student loans, and apply for as many scholarships as possible, before pursuing private student loans.
Armed with this advice, youre sure to find a private student loan thats right for you. Take your time, review your options carefully, and go shopping!
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Other Private Student Loans We Considered
- Citizens Bank private student loans. Citizens Bank offers good rates, but there are fewer repayment options through this lender, as Citizens doesn’t give the option to pay during school.
- Credible private student loans. Credible doesn’t directly make student loans rather, this is a marketplace that makes loans through the lenders listed above and more. Credible works with Ascent, Citizens Bank, College Ave, and Sallie Mae, for example.
How Student Loan Interest Rates Work
When it comes to federal student loans, the current interest rate is set by Congress and is based on the final 10-year Treasury notes auction held in May, with an added percentage.
When it comes to private student loans, historically most lenders have used the one-month or 3-month LIBOR as the basis for the interest rates they offer. Some lenders may use the Prime Rate, and you may also start to see the Secured Overnight Financing Rate used. Whichever index your interest rate is tied to, the lender will add a markup on top of it. The amount of the markup will be based on your credit and other factors. Ultimately, this will determine your Annual Percentage Rate .
To get an idea of how student loan interest adds up on your student loans, weve got you covered. We go more in depth here.
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Getting A Private Student Loan
If you reach the annual borrowing limits for federal student loans or if youre otherwise ineligible for them, private student loans may be a good option. But consider a federal student loan as your first option since the interest rates are typically lower. Youll also receive more liberal repayment and forgiveness options with federal student loans.
When shopping for a private student loan, youll generally need to apply directly through a non-federal lender. This includes banks, credit unions, nonprofit organizations, state agencies, colleges and online entities.
Its important to note that youll need a qualified co-signer if you have limited credit history, as undergraduates often do.
Heres what to consider when applying for a private student loan:
- Make sure you qualify. Private student loans are credit-based, and lenders typically require a credit score in the high 600s. This is why having a co-signer can be particularly beneficial.
- Apply directly through lenders. You can apply directly on the lenders website, via mail or over the phone.
- Compare your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.
Federal Vs Private Loans: How Interest Differs
When deciding on student loans, research is essential.
After finding as much free money for college as possible, in the form of grants and scholarships, the decision to borrow money should begin with finding out how much federal financial aid students may qualify for. This begins with the Free Application for Federal Student Aid, which is more commonly known as the FAFSA. Completing the FAFSA will determine a students eligibility for grants, scholarships, work-study funds, and federal student loans.
Interest rates for federal student loans are set by Congress each year. Federal loans have the following interest rates and fees beginning on July 1, 2022:
- 4.99% interest rate with a 1.057% fee for Direct Subsidized and Unsubsidized loans for undergraduates
- 6.54% interest rate with a 1.057% fee for Direct Unsubsidized loans for graduate or professional students
- 7.54% interest rate with a 4.228% fee for Direct Parent and Grad PLUS loans
Familiarity with these interest rates allows for better planning due to the standardized rates for all borrowers. Also, make note of loan fees. Federal Direct loans charge fees between 1% and 4% for each loan. This money will be taken out of your loan before you receive it, but youll still have to repay the full amount down the road.
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How Do I Qualify For A Student Loan
Each lender has different requirements when it comes to qualifying for a private student loan. But typically you must:
- Have a qualifying credit score
- Have a qualifying income and debt-to-income ratio
- Be enrolled in an eligible education program
- Be a U.S. citizen or legal resident with a Social Security number
- Be at least 18 years old and hold a high school diploma or equivalent
- Use the loan for education purposes only
Keep in mind that some private lenders offerstudent loans for international studentsorstudent loans for DACA recipients be sure to check with the lender to see what the requirements are.
Learn:How to Qualify for a Student Loan
Best For Flexible Repayment Options: College Ave
College Ave
- Starting Interest Rate: 2.99%
- Min credit score: Not disclosed
- Terms: 5-15 years
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4 types of repayment options
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Quick application process
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Unclear details about career loans
College Ave offers a wide range of flexible repayment options, from payment structure to terms. Here are the in-school payment options students have with a College Ave student loan:
- Full deferment in school and for a six-month grace period after enrollment ends
- Fixed in-school payments of $25 per month
- Interest-only payments while in school
- Full repayment of principal, with interest beginning immediately
While you’re in school, you can defer payments or opt for fixed or interest-only payments that can limit your monthly payments.
On top of these flexible options, College Ave also offers four loan-term options between five and 15 years, which gives you more control over your repayment. And if you have a co-signer, you can release them after 24 payments, too.
College Ave offers loans for undergraduates, graduates, parents, and student loan refinancing. There are also career loans, but the details of those are unclear and you may need to contact the company directly for more information.
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Discover Private Student Loans
What makes Discover stand out: You may like Discover’s undergraduate student loans if you want to avoid fees, as the lender doesn’t have any prepayment penalties, origination fees, or late charges. However, you may be able to find lower fixed rates with other lenders on our list.
Discover also boasts a one-time 1% cash reward on its student loans for borrowers who get a GPA of 3.0 or higher for any academic term covered by the loan. You’ll have to redeem your reward within six months after the loan’s disbursement or six months after the academic term has ended, whichever is later.
What to watch out for: Limited term length options. Discover has only one standard term available, 15 years, which makes it a bad option if you want a different length.
What Are Current Student Loan Interest Rates
The 10-year Treasury rate saw record lows in 2020, and, as a result, federal student loan rates beginning July 1, 2021, are some of the lowest in history.
- Direct subsidized and unsubsidized loans for undergraduates: 3.73%
- Direct unsubsidized loans for graduates or professional borrowers: 5.28%
- Direct PLUS loans for parents and graduate or professional students: 6.28%
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Are There Any Costs Associated With Refinancing
Usually no. Many lenders do not charge origination, application or disbursement fees for refinancing student loans. If youre not sure, ask your lender about its fee structure before you refinance.
Note that when you refinance student loans, you can choose to extend your repayment terms. Opting for a long term can result in higher interest costs over the life of your loan. If you want to reduce the amount you pay in interest, consider selecting a shorter repayment term.
What Is A Good Interest Rate For A Student Loan
Considering the average fixed interest rate among lenders we sampled was around 4-10%, a rate on the low end of this range could be considered good. The current federal student loan rate is 4.99% for undergraduates, which is lower than many private loan interest rates.
Federal student loans come with other benefits, which can ease the burden of debt. For example:
- Students don’t pay interest on subsidized loans as long as they’re in school.
- Federal loans offer more flexible repayment options.
- Borrowers with federal loans may qualify for debt cancellation through Public Service Loan Forgiveness or other programs.
For these reasons, it’s generally wise to take full advantage of federal financial aid before turning to private loans.
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Get The Faqs On Private Student Loans
Before applying for private student loans, its best to look at other sources of financial aid and check out the Department of Education website at studentaid.gov. Its recommended that you use a 4-step approach to get the funds you need:
1) Look for educational funding you dont have to pay back, like scholarships, grants, and work-study opportunities.
2) Fill out a FAFSA® form to apply for federal student loans. Federal unsubsidized loans dont collect interest while you are in school. Most federal student loans dont require a credit check or a cosigner, and offer federal programs if youre struggling with payments.
3) Consider asking a parent to look at federal parent loans. The Parent PLUS loan is issued directly to parents or guardians of current students.
4) Look at a private student loan to cover any differences between your total cost of attendance and the amount not included in steps 1-3.
To learn more about federal student loan programs, visit the U.S. Department of Education. You can also fill out a free application for federal student aid or FAFSA® here.
The best private student loans should give you a low interest rate that will complement your federal financial aid. Keep in mind that you will accumulate student loan interest on both federal student loans and private student loans over time.
A student is considered independent if he or she meets any one of the criteria below:
Below are the borrowing limits for different students.
The Biden Presidency’s Affect On Student Loans
While the president has no say in student loan interest rates, Biden has been seeking other ways to make college more affordable for students and reduce the need for student loans altogether. Among his proposals are subsidized tuition at minority-serving institutions and higher Pell Grant values.
He has also been exploring avenues of forgiving existing student loan debt. However, any student loan forgiveness measures would likely apply only to federal student loans.
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Do I Need A Cosigner For A Private Student Loan
It depends, but in most cases, yes. You dont have to add a cosigner unless youre under the age of majority in your state . But if you have a limited or poor credit history, a lender may require you to add a creditworthy cosigner to balance out their risk on the loan.
Plus, more than 90% of private student loans taken out by undergraduate students are cosigned. Even if youre a graduate student and dont need one, adding a cosigner with good credit can improve your chances of qualifying for a private student loan at a lower rate.
Credible even makes it easy to compare cosigners to see which cosigner can help get you the best rate.
Learn More:Getting Student Loans Without a Cosigner
Know The Difference Between Variable And Fixed
There are two types of interest rates youll likely see quotes for: variable and fixed. With fixed interest rates, your rate is set for the entirety of your loan term. So, if youre offered a 7 percent rate on a 10-year loan, youll pay 7 percent interest on your balance every year for the next 10 years.
Variable rates, on the other hand, are not set in stone. Theyre tied to an index rate, and as that rate changes , the rate on your loan can change, too, sending it up or down and your monthly payment along with it. Because of this, your payments and interest costs will fluctuate with a variable-rate loan. This makes it a riskier loan choice overall.
For these reasons, you cant make an apples-to-apples comparison of fixed- and variable-rate loans. A low fixed rate is not the same as a low variable rate, because it may not remain at that low level for very long. With any variable-rate loan, its important to know when your rate can change, as well as how high it can go at any given point. Most lenders have a feature called rate caps to protect you from sky-high jumps in rates.
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The Benefits Of Refinancing Student Loans
refinancing student loans can be a great way to get a lower interest rate and potentially save money over the life of the loan.
refinancing student loans can also improve your credit score, since the loan is now considered more responsibly managed.
there are a few things to keep in mind when refinancing student loans:
Make sure you understand the terms of the loan refinance, including what interest rate you are getting and how long it will be for. Before refinancing, make sure you have saved enough money to cover any potential cost of the refinance, such as closing costs or fees. If youre planning to refinance your federal student loans, be aware that you may need to provide additional documentation such as your income tax returns or pay stubs.
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