Last week, the average interest rate on 10-year fixed-rate private student loans jumped up. Yet for many borrowers, it could be a good time to apply for a private student loan. Rates are still relatively low.

The average fixed interest rate on a 10-year private student loan was 7.71% from August 5 to August 10. That’s for borrowers with a credit score of 720 or higher who prequalified on Credible.com’s student loan marketplace. The average interest rate on a five-year variable-rate loan was 11.93% among the same population, according to Credible.com.

These rates are accurate as of August 5, 2024.

Last week, the average fixed rate on a 10-year loan increased by 0.21% to 7.71%. The average stood at 7.50% the week prior.

Borrowers currently in the market for a private student loan will receive a higher rate than they would have at this time last year. At this time last year, the average fixed rate on a 10-year loan was 7.56%, 0.15% lower than today’s rate.

Let’s say you financed $20,000 in student loans at today’s average fixed rate. You’d pay around $240 per month and approximately $8,752 in total interest over 10 years, according to Forbes Advisor’s student loan calculator.

Variable-Rate Loans

Average variable rates on five-year loans dropped last week to 11.93% on average from 12.34%.

In contrast to fixed rates, variable interest rates fluctuate over the course of a loan term. Variable rates may start lower than fixed rates, especially during periods when rates are low overall, but they can rise over time.

Private lenders often offer borrowers the option to choose between fixed and variable interest rates. Fixed rates may be the safer bet for the average student, but if your income is stable and you plan to pay off your loan quickly, it could be beneficial to choose a variable loan.

Financing a $20,000 five-year private loan at 11.93% would yield a monthly payment of approximately $444. A borrower would pay $6,651 in total interest over the life of the loan. But the rate in this example is variable, and it could move up or down each month.

Comparing Private Student Loans

First, take a look at the loan’s overall cost. Consider both interest rate and fees. Also, look at the type of help each lender offers if you’re not able to afford your payments.

Keep in mind that the best rates are only available to those with good or excellent credit.

Experts generally recommend that you borrow no more than what you’ll earn in your first year out of college. While some lenders cap the amount of money you can borrow each year, others don’t. When comparing loans, figure out how the loan will be disbursed and what costs it covers.

Getting a Private Student Loan

If you reach the annual borrowing limits for federal student loans or if you’re otherwise ineligible for them, private student loans may be a good option. But consider a federal student loan as your first option since the interest rates are typically lower. You’ll also receive more liberal repayment and forgiveness options with federal student loans.

To get a private student loan, you’ll generally need to apply directly through a non-federal lender. You can find private student loans through banks, credit unions and online entities. Nonprofit organizations, state agencies and colleges also offer loans.

Keep in mind that undergraduates with limited credit history often need a co-signer who can meet the lender’s borrowing requirements.

Here’s what to consider when applying for a private student loan:

• Make sure you qualify. Private student loans are credit-based, and lenders typically require a credit score in the high 600s. This is why having a co-signer can be particularly beneficial.
• Apply directly through lenders. You can apply directly on the lender’s website, via mail or over the phone.
• Compare your options. Look at what each lender offers and compare the interest rate, term, future monthly payment, origination fee and late fee. Also, check to see if the lender offers a co-signer release so that the co-borrower can eventually come off of the loan.

The Rate You’ll Receive

The rate you receive depends on whether you’re getting a fixed or variable loan. Rates, in part, are based on your creditworthiness—those with higher credit scores often get the lowest rates. But your rate is based on other factors as well. Credit history, income and even the degree you’re working on and your career can play a part.

Caroline Basile and Jordan Tarver, in their article “Private Student Loan Rates: August 13, 2024—Loan Rates Increase,” discuss the recent rise in private student loan rates and what it means for borrowers.

For detailed information on the latest rates and their implications, you can read the full article by Caroline Basile and Jordan Tarver on Forbes.