Interest Rates on Student Loans

    Student loans are meant to help individuals reach their higher education goals. Because of this, they typically carry lower interest rates than other types of loans and debts. Still, your exact interest rate is based on what type of loan you take out.

    Federal student loans tend to come with low interest rates, especially if they are need-based. The federal government sets fixed interest rates for the different loans they have available for students. Privately funded student loans depend on your credit history and tend to carry higher rates. However, these interest rates can still be significantly lower than the rates of other loans such as credit card debt.

    Interest is tacked onto the total amount of money that you owe. This means that as you pay back the original amount of money you borrowed, you are also responsible for paying any interest that accrues. It can add considerably to the total amount you owe, especially if you defer your payments and allow interest to accumulate before you begin your repayment plan.

    If you’ve already started a student loan repayment plan and are struggling to keep up, Debt.org can help.

    Interest Rates for Federal Student Loans

    Federal student loans have interest rates ranging from 5 percent to 7.9 percent, with the standard being 6.8 percent. Interest rates are normally fixed for the lifetime of a loan; even though rates are re-evaluated by Congress every few years, the interest rates on your existing loans should not be affected.

    For the 2011 school year, new Stafford loans came with interest rates of 6.8 percent. This type of loan is the most common type of federal student loan. If your Stafford loan is subsidized rather than unsubsidized, it does not begin accruing interest until after you leave school.

    Students from low-income families could qualify for Perkins loans. These loans have a fixed interest rate of 5 percent, making them a bit more manageable. They do not accrue interest while you are attending school.

    Parents and graduate students may be eligible for PLUS loans, another type of federal student loan. At 7.9 percent, these have the highest interest rate of any federal student loan.

    Interest Rates for Private Student Loans

    Interest rates for private student loans commonly fall between 9 and 11 percent. Because these interest rates are not regulated, they can be much higher in some cases.

    Prospective students should keep a closer eye on interest rates if they are considering private student loans. In recent times, private lenders have offered interest rates as low as 2 to 3 percent. This can be very enticing compared to federal student loans. You can consolidate private student loans, possibly saving money on your monthly payment, depending on your credit score and income.

    However, those rates could change as the years go by, on your way to paying back the loans. So while you may start with a very low rate, you could end up with one in the double digits.

    What Else Should I Know about Student Loan Interest Rates?

    If you decide to take out a student loan, whether it’s through the federal government or a private lender, be sure to check the fine print and have a clear understanding of your interest rate.

    You should also research the lender’s flexibility. Some are willing to work with you and set up a repayment plan to fit your needs, while others are more rigid. For example, most student loans can be consolidated upon graduation, while some are ineligible.

    Likewise, make sure you know if your interest rates could increase as time goes on and, if so, by how much.

    If you are unsure about your interest rates, there are ways to figure out how much you are expected to pay. Check the rate on statements that are sent to your home. If you can’t figure it out, call your lender and ask.

    Cecillia Barr

    Cecillia Barr is a graduate of the University of Central Florida. She blogs about her extensive knowledge on student loans in order to help others reduce their debt and live financially independent lives.

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