As a result of the ongoing suspension of federal student loan payments and interest up to September 30, 2021, fixed-rate and variable loan refinancing rates are plummeting. Forbes broke the news last week, giving the figures—a 2.50% rate for a fixed-rate loan and 1.88% for a variable one.
Compared to last year’s rates of 4.94% for a 10-year fixed-rate loan, and 3.36% for a 5-year variable loan, the change is drastic. With each extension of the forbearance, the repayment rate drops and remains in steady decline.
The forbearance measures that were the catalyst for the rate drop have been a part of the COVID-19 relief plan since March 2020 and apply only to federal student loans. By having their student loans suspended with a 0% interest rate, those with ongoing loans have no incentive to look into refinancing, making the rates drop significantly as a result.
Why Are Students Refinancing Their Loans During the Pandemic?
Recent statistics show that around 44 million Americans have student loan debt, 92% of which are federal student loans.
The pandemic has disrupted many people’s financial security, and this includes those with ongoing student loans. Even though the CARES Act is giving individuals with federal student loans a break, the ones with private loans aren’t spared the expenses, making it challenging to keep up with debt repayments.
However, as 92% are benefiting from the suspension, the remaining 8% with private student loans are reaping the benefits of the decreased refinancing rates. Whether it’s a federal or private student loan, having a good loan repayment plan is essential to get rid of student loans in a fast and efficient way, and refinancing loans is one of the best ways to negotiate better repayment terms.
The average student loan debt in America is $32,731—a 20% increase from 2015-2016. According to some estimates, if the trend continues, outstanding student debt can be expected to reach $3 trillion by 2038.