Aug. 9, 2022, 8:51 a.m. EDT

Rates on private student loans have fallen. Here’s what to know before you take one out

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Alisa Wolfson

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Private student loan rates have eased a bit: For 10-year fixed-rate loans, average rates hit 6.38% for the week ending July 5, while for 5-year variable-rate loans, rates decreased more dramatically to 3.96% from 4.31%, according to the latest rates from personal finance marketplace Credible of those who prequalified on their student loan marketplace with credit scores of 720 and above for the week ending July 4. Of course, the rates you’ll pay depend on factors like what lender you choose, the type of loan (fixed-rate or variable-rate) and your credit score. See the lowest private student loan rates you may qualify for here.

There are two main types of student loans: federal, which are made and funded by the federal government, and private, which are issued by private financial institutions like banks. Federal student loans have fixed interest rates and private student loans can have either a variable or fixed rate.

“I always recommend that students borrow federal loans first before turning to private student loans,” Mark Kantrowitz, a student loan expert and founder of  PrivateStudentsLoans.guru, recently told MarketWatch Picks. Indeed, federal loans usually have more favorable repayment terms (like income-driven repayment plans), loan forgiveness and other perks. 

That said, if you’ve managed to max out your federal student loans and you’ve still got debt, private student loans can help bridge gaps in your funding. Plus,  if you have excellent credit or you have a cosigner with excellent credit, you can likely take advantage of competitive interest rates, which can sometimes make private student loans more affordable than public loans. See the lowest private student loan rates you may qualify for here.

It’s essential that you shop around for a private student loan to get the best rate you can. As Picks recently reported: “Unlike federal loans, private loans may offer a variable rate. This may seem tempting because starting rates may be lower than fixed rates, said Kantrowitz. But they may start increasing over the term of the loan, which could increase the cost of that loan over time, and thus your monthly payment could increase. “The only time I would recommend a borrower getting a variable rate right now is if they are capable of repaying the loan and fully intend to do so before interest rates rise too much,” he said.   

Rates accurate at the time of publication.

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