When refinancing or consolidating a student loan, it is important to know what your new rate will be, so you can continue to make on time monthly payments and pay off your loan quickly. Before you refinance a loan, it is important to decide if it is the best option. Refinancing or consolidation are good options when a borrower needs to lower their monthly interest rate or extend the term of the loan.
Federal Student Loan Refinance Rates
Federal Student Loans are issued by the Department of Education. One benefit of a Federal Student Loan is that borrowers, regardless of credit score or credit history, are guaranteed low interest rates. Depending on the loan, the interest rate will be between 3.4% and 6.8%. Almost all of the Federal Student Loans are eligible for refinancing and consolidation. For Federal Student Loans, the interest rate will be capped at 8.25% and is calculated based on the weighted average of the refinanced/consolidated loan. There are calculators available through the Department of Education to help you figure out your adjusted interest rate if you chose to refinance your loans. Federal Student Loans do not charge fees for those who do refinance their student loans.
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Rates can vary from 3.4% to 8.25%
Private Student Loan Refinance Rates
Private Student loans will vary by lender as to the availability and the regulations for refinancing student loans. Unlike with Federal Student Loans, Private Student loans are not guaranteed to not have hidden fees and charges if and when you decide to refinance your student loans, so be wary when discussing this with your lender. Also different than Federal Loans is that private loans base interest rates on the borrowers credit score, which is why private student loans tend to have a higher interest rate than federal loans.
Therefore, it is wise to refinance private student loans and federal student loans separately. Refinancing a private student loan will potentially give you a lower interest rate than before, but, unlike with federal student loans, there is no cap to the interest rate. Refinancing a private student loan is a good idea if you have a variable interest rate and would rather have a loan with a fixed interest rate. Variable interest rates can seem enticing at first, but there is no guarantee of a favorable rate for the lifetime of your loan. Talk with your individual lender in order to obtain information about how to refinance your student loan(s). Also, before taking out any new student loans, make sure to apply to and accept loans that have a fixed interest rate option.