Student loans are cheaper than ever — here's how you can pay less

Refinancing your student loans can help you pay them down faster.

Students or parents taking out federal student loans now can expect to see low fixed interest rates thanks to the Federal Reserve's decision to keep short-term interest rates to nearly zero in an effort to stimulate the economy amid the coronavirus pandemic. For example, undergraduate borrowers who got direct subsidized or unsubsidized loans after July 1, 2020, received a fixed interest rate of 2.75% while parents who obtained a Direct PLUS loan saw a fixed interest rate of 5.3%.

Borrowers who have already taken out federal student loans can take also advantage of some cost-savings reprieve after Congress suspended payments and interest on these loans through Sept. 30 via the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act.

But while the extension of the CARES Act repayment pause is still being debated, borrowers may want to look ahead and consider refinancing their student loans to take advantage of the current market's lower private student loan rates. A snapshot of variable- and fixed-interest rates on the online marketplace Credible has rates ranging from as low as 1.99% to 4.54%.

While you may lose some repayment and loan forgiveness options in refinancing a federal student loan to a private student loan, it could be a good move depending on your situation, to help lower monthly payments, pay less interest and put more money toward the principal amount of the loan. 

Why are student loan interest rates so low? 

Student loan interest rates remain low because the Federal Reserve decided to maintain its historic, near-zero short-term interest rates to encourage consumers to take out loans -- or refinance them --  into lower rates in an effort to boost the economy. While the Fed's decision does not directly affect private lenders' interest rates, it can influence the private market to offer competitive rates.

An analysis of over 17,000 student loan refinancings conducted during the past four years and facilitated by the Credible marketplace found that during June 2020:

Rates on 10-year fixed-rate loans averaged 4.48%, down 26% from a July 2018 peak of 6.05%

Rates on 5-year variable-rate loans averaged 2.95%, down 37% from a September 2018 high of 4.68%

A borrower who is repaying the average graduate school debt of $84,300 over 10 years at 6.22% interest could either save $22,656 by refinancing into a 5-year variable-rate loan or $8,686 by refinancing into a 10-year fixed-rate loan.

You can see the current fixed and variable interest rates from multiple lenders at once by visiting Credible’s rates table.


Should I refinance my student loans? 

People who are saddled with student loan debt should take advantage of the market's low-interest rates. Refinancing either a federal or private student loan into a lower rate can slash the amount of time it takes you to pay them off and help you reach other goals such as saving money to buy a home. 

Use an online tool like Credible to compare student loan refinancing rates from multiple lenders at once without having your credit score impacted.


You can determine what your new monthly payments could be by using this online student loan refinancing calculator

How do you find the best student loans?

Borrowers should consider refinancing their private student loans since interest rates are low.

To get the best deal for private student loans, it's always a good idea to shop and compare lenders. Credible is a great place to start — just enter your information into their free tools and see what kind of rates you qualify for today.


If you have a good credit score, another option is to add a cosigner when you refinance a student loan. 

Aside from this, if you are pursuing further higher education and need to take out a new student loan, only borrow the amount you need for tuition, books and supplies, housing and food. Be sure to use an online student loan calculator to estimate your overall costs.