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For 10-year fixed rate loans, the average student loan refinancing rate hit 5.01%, up slightly from a week prior, and average rates on 5-year variable-rate loans rose slightly to 4.01%, according to the latest rates from personal finance company Credible of those who prequalified on their student loan marketplace 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 refinancing rates you might qualify for here.
When you refinance a student loan, you’re essentially taking out a new loan to pay off the existing loan. But why go through the trouble of taking out an entirely new loan? Well, for one, you may be able to take advantage of better rates and terms. Still, lower rates aren’t always a good enough reason 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 to a private loan. And once you’ve converted a federal loan to a private loan, you can never change it back. This means the borrower loses all of the federal protections that once accompanied their loan, including things like income-based repayment tools and certain loan forgiveness options. Right now, while pandemic-related payment and interest suspensions are in effect on federal loans, a borrower likely wouldn’t want to refi a federal loan.
Because private student loan borrowers aren’t privy to such protections, they won’t lose those protections when refinancing, and in fact, refinancing can significantly lower payments or loan terms. If you see lower rates, your credit score has improved or you’re making more money than you were when you last refinanced your loan, refinancing can be a great way to save money every month. Something else to consider, if you have the funds available, is to adjust the terms of your loan, because shortening your payback period will save you money in the long run, even if your monthly payments increase as a result.
You can see the lowest student loan refinancing rates you might qualify for here.
Marketwatch Picks put together a guide including 5 questions you should ask yourself during the refinancing process, if you’re still not sure whether this is the right move for you. To see how much you can can save when refinancing student loans, this Marketwatch Picks guide can help you get started.
*Rates accurate at time of publication.