College costs keep rising, leaving students like you with a need to borrow money to finance your education. Make borrowing as inexpensive as possible by choosing a private student loan with a low interest rate. A lower interest rate can save you thousands of dollars over the life of the loan.
But how low do interest rates go? Is borrowing privately cheaper than borrowing federally?
Current Private Student Loan Interest Rates
Current Federal Student Loan Interest Rates
Compare the rates above to the current federal student loan interest rates to see at a glance if you could save money by borrowing privately.
Unlike private student loans, federal student loans only come with fixed interest rates. For the 2019-2020 academic year, the federal student loan interest rate for undergraduates is 4.53%. It’s 6.08% for graduate student loans and 7.08% for Direct PLUS loans.
How Much Does the Interest Rate Really Matter?
An interest rate is the cost of borrowing. It’s what you must pay back in addition to the amount you borrowed for school. You should care about it because the lower your interest rate, the less money you’ll need to pay back.
Consider this example:
Suppose you borrow $30,000 for undergrad at a 6% interest rate with a 10-year loan term. You’ll end up paying $30,000 in principal plus $9,967.38 in interest for a grand total of $39,967.38. The cost of borrowing that $30,000 is $9,967.38.
If you borrow that same $30,000 with a 10-year loan term but at a 5% interest rate, the cost of borrowing is $8,183.59. By qualifying for or choosing the loan with the lower interest rate, you’ll save $1,783.79.
How Are Student Loan Interest Rates Determined?
Private student loan interest rates are competitive, changing monthly as the market changes and your credit score changes. Federal student loan interest rates are set each year on July 1st, staying the same through June 30th of the same year.
Private Student Loan Interest Rates
Private lenders typically offer you the choice of a fixed or variable interest rate. A fixed interest rate stays the same throughout the life of the loan while a variable interest rate changes throughout the life of the loan.
Private lenders determine the interest rate based on market factors and borrower characteristics like credit score and income. That’s why lenders run a credit check before determining your interest rate. It’s also why many students need a cosigner with good credit to get approved for a private student loan.
Advertised rates from private lenders change from month to month as the market changes. If you borrow a variable interest rate loan, the interest rate will also fluctuate from time to time. Many lenders base these fluctuations on a benchmark index rate like the London Interbank Offered Rate (LIBOR)—your variable interest rate does not fluctuate based on changes in your income or credit history.
Federal Student Loan Interest Rates
Federal student loan interest rates are set each year on July 1st and are based on the high yield of the 10-year U.S. Treasury note. A certain percentage then gets added onto this by Congress. The add-on amount depends on the loan type.
For example, in 2018 the high yield 10-year U.S. Treasury note was 2.995%. To calculate the interest rates for undergraduates 2.05% was added to 2.995%. This resulted in an interest rate of 5.05% for the 2018-2019 academic year. To determine the graduate rate, 3.60% was added, resulting in an interest rate of 6.60%.
Are Average Private Student Loan Interest Rates Low Enough to Save Me Money?
If you have excellent credit or a cosigner with excellent credit, borrowing privately could land you a better interest rate than the current federal student loan interest rates.
Private student loan interest rates range from around 4% to 13% for fixed interest rates and around 3.35% to 13% for variable interest rates. That means it’s possible to secure a lower interest rate on a private student loan than on a federal student loan, especially if you’re debating between a Parent PLUS loan and a private student loan.
Use this calculator to see how much you could save by refinancing
It’s Not Just About the Interest Rate
When comparing private and federal student loans, you need to look at more than just the interest rate. Take the loan fees and loan term into account too as you calculate savings.
A loan fee is simply a percentage of the total loan amount that gets paid to the lender instead of the college. For example, a 1% loan fee on a $10,000 means $100 goes to the lender and $9,900 goes to the college.
Undergraduate federal student loans and unsubsidized graduate student loans have a loan fee of 1.059%. Direct PLUS loans have a loan fee of 4.236%. The private lenders we work with charge zero loan fees.
When a loan comes with fees, you need to borrow more than you need, which means more money to pay back in the future.
For example, if you need exactly $9,000 to pay the college for the upcoming school year, you actually need to borrow this much:
With Federal Direct Undergraduate/Graduate Loans: You need to borrow $9,096.33. That way, $9,000 will go to the college and $99.33 will go to the federal government as the 1.059% loan fee.
With a Federal Plus Loan: You need to borrow $9,398.10. You’ll have the $9,000 you need for the upcoming year and the $398.10 you need for the 4.236% loan fee.
With a Private Loan: Assuming the lender charges zero fees, you only need to borrow $9,000.
Since you borrow more if you choose federal, you don’t need to beat the federal student loan interest rates to save money.
In fact, if you secure a private loan for $9,000 with no loan fee and a 10-year term length, you’ll save money so long as:
- The interest rate is lower than 4.760% compared to the federal Direct unsubsidized* undergraduate loan
- The interest rate is lower than 6.317% compared to the Direct graduate loan
- The interest rate is lower than 8.066% compared to the federal Plus loan
The loan term also influences your savings just as much as the interest rate does. The longer the loan term, the longer your loan is accumulating interest.
Suppose you need to borrow $5,000.
You could borrow $5,000 in unsubsidized undergraduate loans at a 4.53% interest rate with a 10-year loan term, leaving you with a total payback of $6,226.98.
Or, you could borrow $5,000 privately at that same 4.53% interest rate but with a 7-year loan term. This would save you $383.05.
Can’t get approved for that low of an interest rate? It might not be a problem.
Assuming you stick with the 7-year loan term, you’d just need to find an interest rate lower than 6.542% to save money compared to the federal student loan. You’d also need the room in your monthly budget for larger monthly payments.
Again, saving money doesn’t always mean securing a lower interest rate.
Calculate Savings with Our Student Loan Payment Calculator
Compare private student loan offers and federal student loans for yourself by using this student loan payment calculator. Input the loan amount, the term length, and the interest rate to see how much you’ll owe in interest and what your monthly payment will be.
Don’t Forget to Consider What You’re Giving Up…and Gaining
If you’re in a situation where borrowing privately is cheaper than borrowing federally, proceed with caution. Make sure you know what you’re giving up if you decide not to borrow federally.
Federal student loans come with borrower protections like income-driven repayment plans, interest forgiveness for subsidized loans, student loan forgiveness plans, death and disability discharge, and forbearance if you head back to school.
Seek out a private lender offering similar protections.
The best private student loan lenders offer:
- Low-interest rate loans with your choice of term length
- Flexible repayment options
- Death and disability discharge
- At least a 6-month grace period
- 25% autopay interest rate deduction
- Forbearance for economic hardship
Final Thoughts on Average Private Student Loan Interest Rates
Remember, average private student loan interest rates are just that—the average. You won’t know what rates you qualify for until you apply on your own or with a cosigner.
Also, even if you decide that private student loans fit your situation best, continue to file the FAFSA. It makes you eligible for other forms of financial aid like school-sponsored scholarships, federal work study, and grants. Plus, you’ll see how much you can borrow in unsubsidized and subsidized federal student loans.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. As certified by your school and less any other financial aid you might receive. Minimum $1,000. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation. This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 5/18/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.