The average private student loan interest rates rose for borrowers with credit scores of 720 or higher who used the Credible marketplace to take out 10-year fixed-rate and five-year variable-rate loans during the week of August 21.
Ten-year fixed-rate loan rates increased by 0.24 percentage points, while rates for 5-year variable-rate terms increased by 1.45 percentage points. In addition to this week’s rate changes, rates for both loan terms are higher than they were this time last year.
Related: Best Private Student Loans
10-year fixed-rate loans
Average 10-year fixed rate: 8.19%, up from 7.82% the week before.
Many private student loan borrowers opt for a standard, 10-year repayment term. This means they have a decade to make “installment” payments to zero out their debt.
With a fixed interest rate, borrowers can rest assured that these monthly payments won’t fluctuate over time. That’s because your fixed annual percentage rate (APR) — the rate, accounting for fees — determines how much you owe your lender. Securing the lowest student loan interest rate possible is critical.
5-year variable-rate loans
Average 5-year variable rate: 10.83%, up from 9.38% two weeks before.
Students and parents who can afford a faster payoff of education debt may opt for a five-year repayment term, which is also commonly available among reputable lenders. The benefit of a five-year term is that there’s less time on the repayment clock for interest to accrue and capitalize onto your balance. Lenders may also award lower student loan rates for shorter terms.
The catch is that a variable interest rate may not be the right choice for all borrowers since it brings unpredictability to your budget. A variable APR that increases according to economic benchmarks, as defined by your lender, would increase the size of your monthly payment. Keep this in mind when reviewing low-interest student loans.
Related: How to get a private student loan
Student loan weekly rate trends
Check out recent private student loan interest rates for borrowers who used the Credible marketplace to select a lender.
For many borrowers, federal student loans may be the first choice for borrowing. Federal loans come with fixed, standardized interest rates and most loans don’t require a credit check. In the 2023-24 school year, for example, federal student loan rates range from 5.50% to 8.05%. Borrowers can also access unique federal protections, such as income-driven repayment plans, forgiveness opportunities, and more flexible deferment and forbearance.
If you’re not eligible for federal loans or have maxed out your borrowing limits, consider private student loans. Private lenders include banks, credit unions, and online lenders. Depending on your financial situation, credit history, and the lender you choose, interest rates and terms on private student loans can vary — but well-qualified applicants could find lower rates than what’s available on federal loans.
Who sets federal and private interest rates?
Federal student loan interest rates are set by Congress each year. The rate you receive depends on the type of federal loan you take out, your dependency status, and the type of program you’re enrolled in. In the 2022-23 school year, federal rates ranged from 4.99% to 7.54%.
Private student loan interest rates can be fixed or variable and are determined based on your credit, repayment term, lender, and other factors. As a general rule, the better your credit score, the lower your interest rate is likely to be.
How does student loan interest work?
Interest is what you pay to borrow money. It’s expressed as a percentage of the loan amount and eats up a portion of each payment. Your monthly payment often pays off accrued interest first, with the rest going to the amount you initially borrowed (the principal).
A lower interest rate could help you save money over the life of the loan and pay off your debt faster.
Factors that affect private student loan interest rates
The interest rate on your private student loan can be affected by many factors, including:
- Trends in the market. Lenders typically set their variable rates according to the Secured Overnight Financing Rate (SOFR), which is a reference rate used to measure the cost of borrowing. If the SOFR increases, your interest rate likely will, too.
- Your credit score. The higher your score, the lower your interest could be. If your score is less than excellent (that is, below 800), you likely won’t qualify for the lowest advertised rates. But a creditworthy cosigner could help lower your rate, potentially saving you thousands of dollars in interest.
- Your debt-to-income ratio: Your debt-to-income (DTI) ratio is the total percentage of your monthly income that goes toward your debts. Lenders typically prefer a DTI below 35%. But borrowers likely need an even better DTI to get the lowest rates.
- Your repayment period: The length of your loan’s term typically varies between 5 to 25 years, depending on your lender. The term you choose can affect your rate; the faster you repay your loans, the lower your interest rate may be.
Related: When to apply for student loans
How can I reduce my student loan interest rate?
If your interest rate is too high, there are a few ways you can lower it.
- Get an autopay discount. Enrolling in automatic payments with your lender can often lower your rate by 0.25 percentage points. Speak with your lender, however, as this perk isn’t offered everywhere.
- Apply with a cosigner. A well-qualified cosigner can help you get approved for a loan with a low-interest rate, especially if you have fair or bad credit. However, your cosigner is equally responsible for your debt. If you fail to make payments, they’ll have to pay your loans for you.
- Boost your credit score. Actions like paying your bills on time, paying down existing debt, and avoiding new credit accounts can all help improve your credit score.
- Compare lenders. Do your homework and compare lenders to find the offer with the lowest rate. Keep in mind that even if a lender offers a lower monthly payment, a higher interest rate could still cost you more in the long run.
- Choose a shorter repayment period. Most lenders offer this option, as picking a shorter term can typically get you a lower interest rate. However, make sure you can afford the monthly payments on a shorter term.
About Credible
Credible is a multi-lender marketplace that empowers consumers to discover financial products that are the best fit for their unique circumstances. Credible’s integrations with leading lenders and credit bureaus allow consumers to quickly compare accurate, personalized loan options ― without putting their personal information at risk or affecting their credit score. The Credible marketplace provides an unrivaled customer experience, as reflected by over 4,300 positive Trustpilot reviews and a TrustScore of 4.7/5.