Finance

Private student loan interest rates rise for 5- and 10-year terms

Published

4 months ago

August 28, 2024

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The latest private student loan interest rates from the Credible marketplace, updated weekly. (iStock)

During the week of Aug. 19, 2024, average private student loan rates increased for borrowers with credit scores of 720 or higher who used the Credible marketplace to take out 5-year variable-rate loans and 10-year fixed-rate loans.

10-year fixed rate: 7.89%, up from 7.63% the week before, +0.26
5-year variable rate: 9.92%, up from 9.24% the week before, +0.68

Through Credible, you can compare private student loan rates from multiple lenders.

For 10-year fixed private student loans, interest rates rose by 0.26 percentage points, while 5-year variable student loan interest spiked by 0.68 percentage points.

Borrowers with good credit may find a lower rate with a private student loan than with some federal loans. For the 2024-25 academic school year, federal student loan rates will range from 6.53% to 9.08%. Private student loan rates for borrowers with good-to-excellent credit can be lower right now.

Because federal loans come with certain benefits, like access to income-driven repayment plans, you should always exhaust federal student loan options first before turning to private student loans to cover any funding gaps. Private lenders such as banks, credit unions, and online lenders provide private student loans. You can use private loans to pay for education costs and living expenses, which might not be covered by your federal education loans.

Interest rates and terms on private student loans can vary depending on your financial situation, credit history, and the lender you choose.

Private student loan rates (graduate and undergraduate)

Who sets federal and private interest rates?

Congress sets federal student loan interest rates each year. These fixed interest rates depend on the type of federal loan you take out, your dependency status and your year in school.

Private student loan interest rates can be fixed or variable and depend on your credit, repayment term and other factors. As a general rule, the better your credit score, the lower your interest rate is likely to be.

You can compare rates from multiple student loan lenders using Credible.

How does student loan interest work?

An interest rate is a percentage of the loan periodically tacked onto your balance — essentially the cost of borrowing money. Interest is one way lenders can make money from loans. Your monthly payment often pays interest first, with the rest going to the amount you initially borrowed (the principal).

Getting a low interest rate could help you save money over the life of the loan and pay off your debt faster.

What is a fixed- vs. variable-rate loan?

Here’s the difference between a fixed and variable rate:

With a fixed rate, your monthly payment amount will stay the same over the course of your loan term.
With a variable rate, your payments might rise or fall based on changing interest rates.

Comparison shopping for private student loan rates is easy when you use Credible.

Calculate your savings

Using a student loan interest calculator will help you estimate your monthly payments and the total amount you’ll owe over the life of your federal or private student loans.

Once you enter your information, you’ll be able to see what your estimated monthly payment will be, the total you’ll pay in interest over the life of the loan and the total amount you’ll pay back.

About Credible

Credible is a multi-lender marketplace that empowers consumers to discover financial products that are the best fit for their unique circumstances. Credible’s integrations with leading lenders and credit bureaus allow consumers to quickly compare accurate, personalized loan options – without putting their personal information at risk or affecting their credit score. The Credible marketplace provides an unrivaled customer experience, as reflected by over 7,700 positive Trustpilot reviews and a TrustScore of 4.8/5.

Finance

Exchange-traded funds have ‘tax magic’ that many mutual funds don’t offer

Published

2 hours ago

December 30, 2024

Business Finance News

Israel Sebastian | Moment | Getty Images

Investors who hold exchange-traded funds can often escape a tax bill incurred by those with mutual funds, which are generally less tax efficient, according to investment experts.

ETFs and mutual funds are baskets of stocks, bonds and other financial assets overseen by professional money managers. But they have a different legal structure that bestows ETFs with a “tax magic that’s unrivaled by mutual funds,” Bryan Armour, the director of passive strategies research for North America and editor of the ETFInvestor newsletter at Morningstar, wrote this year.

That tax savings relates to annual capital gains distributions within the funds.

Capital gains taxes are owed on investment profits.

Fund managers can generate such taxes within a fund when they buy and sell securities. The taxes then get passed along to all the fund shareholders, who owe a tax bill even if they reinvest those distributions.

Spot bitcoin ETFs surge to more than $120 billion in total market cap

The ETF tax advantage is by virtue of “in-kind creations and redemptions,” which essentially provides for tax-free trades for many ETFs, experts explain. (The ETF’s in-kind transaction mechanism is somewhat complex. At a high level, it involves large institutional investors called “authorized participants,” which create or redeem ETF shares directly with the ETF provider.)

The tax advantage is generally most apparent for stock funds, they said.

For example, more than 60% of stock mutual funds distributed capital gains in 2023, according to Morningstar. That was true for just 4% of ETFs.

Less than 4% of ETFs are expected to distribute capital gains in 2024, Morningstar estimates. Such data isn’t yet available for mutual funds.

More from ETF Strategist:

Here’s a look at other stories offering insight on ETFs for investors.

Importantly, this tax advantage is only relevant for investors holding funds in taxable accounts, experts said.

It’s a moot point for retirement account investors like those with a 401(k) plan or individual retirement account, which already come with tax benefits, experts said.

The tax advantage “really helps the non-IRA account more than anything,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida, and a founding member of Moisand Fitzgerald Tamayo.

“You’ll have tax efficiency that a standard mutual fund is not going to be able to achieve, hands down,” he said.

However, ETFs don’t always have a tax advantage, experts said.

For example, certain ETF holdings may not be able to benefit from in-kind transactions, Armour said.

Examples include physical commodities, as well as derivatives like swaps, futures contracts, currency forwards and certain options contracts, he said.

Additionally, certain nations like Brazil, China, India, South Korea and Taiwan may treat in-kind redemptions of securities domiciled in those countries as taxable events, he said.