The past year saw a lot of stability in the student loan consolidation and refinancing marketplace. The lenders in the business have become a little more established and far less new companies emerged this year. From a borrower standpoint we are still seeing a highly competitive market, and as a result many borrowers are still able to refinance their loans at less than 3%.
As we head into 2017, one trend that we will be watching closely is how increasing federal interest rates affect the interest rates on consolidation. Even though the fed has raised rates and indicated multiple rate increases over the course of 2017, the impact on student loan interest rates appears to be minimal at present. That being said, it appears there is a very good chance that these rates will continue to increase, so we would recommend locking rates as soon as possible and getting fixed rates for loans that will take more than a few years to pay off.
With the latest round of interest rate increases, we have seen the following changes:
- SoFi’s lowest variable rate loan now starts at 2.345%, but their lowest fixed rate loan has dropped to 3.375%.
- CommonBond increased their best variable rates to 2.18%, which is a very slight increase from 2.14%
- DRB’s variable rate loans stayed the same but their fixed rate loans now start at 4.25%, up from the previous starting point of 4.2%.
- The best advertised rate for Earnest has actually dropped! Variable rate loans now start at 2.18% and fixed rate loans start at 3.38%.
- The biggest surprise of late has been LendKey, who lowered their rates again and now offers a variable rate loan starting at 2.09%. At present this is the lowest rate we are aware of.
Wait a minute…
How is it that interest rates are “rising” but in the student loan marketplace the lowest advertised rates are staying the same or in some cases dropping?
There are two explanations for this unexpected outcome.
First, competition in the marketplace may be driving rates down. If there are two gas stations in your town and the price of oil goes up, but one gas station lowers the price of gas, the other will have to lower their price or lose business. The same concept applies here. Lenders may be making less of a profit per loan due to the increased competition.
Another reason that lenders may be able to advertise the same rates on loans is that the requirements to get the lowest possible rate may have gotten more strict. As lender risk goes down, they are able to offer lower rates.
It is also worth noting that these rate changes are all very slight. We haven’t seen any company change their rates dramatically enough to have any impact on our student loan refinance rankings.
What does this all mean for me?
Any borrower who is interested in refinancing their student loans at a lower interest rate has the benefit of a healthy marketplace. Many lenders are competing for your business, which means better products at better prices.
However, it is important to note that the company advertising the lowest interest rate may not be the one that actually offers you the best interest rate. LendKey starts at 2.09%, but they may only offer you a loan at 4%; meanwhile, CommonBond may actually offer you a loan at their lowest advertised rate of 2.18%. Because each lender uses different criteria in evaluating borrowers, it is important to shop around. Be sure to check out our list of student loan consolidation companies and reviews to save yourself some time researching and to verify that you have sufficiently shopped around.