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Student loans can help bridge the gap between the total cost of attending college and the amount of scholarship money a school offers. There are two types of student loans: federal loans, which have benefits and fixed interest rates available to all borrowers, and private loans, which have variable interest rates and terms.
In most cases, federal student loans are the better choice because they're likely to offer lower interest rates and come with special perks and protections. However, you can only refinance your student loans through private lenders.
Student loan refinancing rates
While interest rates have remained in a relatively narrow range in recent weeks, the cost of refinancing student loans has risen over the past year as Federal Reserve policymakers have increased the federal funds rate to tame inflation. While not directly related to student loans, higher Fed interest rates ultimately affect the cost of borrowing for everything from college to real estate to credit cards to cars.
Undergraduate Loans
The current average interest rates for new undergraduate variable student loans are:
Graduate Loans
Here are the current average interest rates for variable student loans for recent graduates:
Private Student Loan Interest Rates vs. Federal Student Loan Interest Rates
Before turning to a private lender, try all of your federal student loan options. Federal student loans almost always have lower interest rates than private loans. Private loans require a credit check, and many students have no credit history or a low credit score. This means you'll likely be offered a higher interest rate than you would on a federal student loan.
Federal student loan interest rates are set by Congress and are the same for all borrowers. There is no credit check, and no income verification or cosigner is required. Federal student loans also offer benefits such as income-contingent repayment plans, deferment, forbearance, and forgiveness — none of which are typically available with private loans.
Interest rates on federal student loans are also rising. Borrowing costs across Department of Education loans will rise again in the 2023-2024 school year after some rates recorded their biggest increases in decades last school year. While the interest rates charged by private lenders aren't tied to federal loan rates, they don't need to stay as low to stay competitive, so any increase in federal loan rates will likely result in increases for private lenders as well.
Federal Student Loan Interest Rates for 2023-2024
Source: U.S. Department of Education
Frequently Asked Questions About Refinancing Student Loans
Whether or not you should refinance your student loans depends on your financial situation. You might consider options like a cheaper school, scholarships, or even a side hustle to earn extra income. Whatever you decide, be sure to understand the terms of your new loan before making your choice.
Ryan Wanman, CEPF
Loan Reporter
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