New data shows one potential remedy from overwhelming student loan debt — a money-saving student loan refinance — just became even more attractive for many U.S. borrowers.
Interest rates on five-year and 10-year refi loans have fallen to new record lows, according to a major student loan marketplace. Refinances are now available at rates under 1.75%.
Given that it's not unusual for a borrower to be carrying tens of thousands of dollars in student debt, a refi to a lower rate can make a big difference in both your monthly and lifetime student loan burden.
5-year variable-rate loans
A five-year variable-rate refinance can help you wipe out your student debt balance more quickly. Rates on those loans have plummeted to an average of just 2.41%, a new low in the weekly data from the Credible marketplace.
The typical rate is down sharply from 2.53% a week earlier, and way down from 3.14% year ago.
The average rate is offered specifically to borrowers with credit scores of at least 720. Lower interest is possible for those with exceptional scores, of 780 or higher; Credible's website indicates that today's refi rates can be as cheap as 1.74%.
At the other end of the scale, people with "meh" scores (between 640 and 679) are usually scoring higher rates, around 4.59%.
Be aware that variable rates can fluctuate based on market conditions, meaning you could wind up with a higher rate before the loan's five-year term is done.
10-year fixed-rate loans
For borrowers eager to lock in a good deal over a longer repayment period, 10-year fixed-rate refinance loans are now averaging 3.35% — also a record low.
Rates have dipped from an average 3.44% during the previous survey week. One year ago, the typical refi was going for 3.95%.
Again, people with better credit qualify for lower rates. But those with unimpressive scores might have to accept a stiffer rate, typically 4.77%.
Though fixed-rate loans generally come with higher borrowing costs than the variable-rate variety, your interest rate is guaranteed to hold steady for the loan term.
Plus, a 10-year loan will offer more affordable monthly payments than a five-year, though you'll likely have to spend a lot more money on interest by the time your debt is paid off.
How to bag the lowest refi rate possible
If you have a federal student loan, be certain you understand what you may give up by refinancing.
Switching from a government loan to a refi — offered by a bank or other private lender — would make you ineligible for the sorts of government relief that have been extended to borrowers during the pandemic, including frozen payments and interest.
But if you’re OK with that tradeoff, or if you already have a private student loan, refinancing to a cheaper rate could slash your monthly payments.
To land the lowest possible refi rate:
Spruce up your credit score. Lenders will review your credit to determine whether you're a good risk. Today it's easy to check your credit score for free, then take steps to shine it up so you'll look more impressive to a lender.
Set up auto-pay. Often, you can knock a little bit off your interest rate by agreeing to make automatic payments. That provides some assurance to the lender that you'll pay on time each month.
Compare your options. Plenty of lenders offer student loan refinances, and the only way to find the best deal is by shopping around. Different lenders can weigh your application differently, so get multiple rate quotes and size them up side by side — before you click "Apply."
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.