Due to economic hardship the federal government has reduced the Interest Rates on
Federal Stafford Subsidized Loans. This will allow students to make lower monthly payments on their
federal loans.
The most important student loan is the one with lowest interest rate.
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Interest Rates Reduction Overview
The federal government has reduced the Interest Rates on all federal student loans that were
subsidized by the government. This rate reduction applies to loans that were made after July 1, 2008.
The interest rates will be reduced as shown in the table below.
It is important to understand that these changes do not apply to loans prior to July 1, 2008. The terms and interest rates of these prior loans remains the same. Only Federal Stafford Subsidized Loans (U.S. Government is the lender) qualify for the reduction. Moreover, only undergraduate students can take an advantage of the reduced rates. All other Federal UnSubsidized Loans from the Direct Stafford or FFEL program will continue to be paid using the 6.8% rate. Graduate Loan borrowers will also have to keep paying the fixed 6.8% rate on federal loans.
Fix Rates
When we talk about fix Interest Rates we refer to the loan rate over a period of time. For the length of the loan the rate does not change. It is fixed and the loan
payment can not increase due to interest rate changes in the marketplace. The cost of interest is the same from the beginning to end of the loan.
Variable Rates
Variable interest rates vary depending on market conditions. Student Loans with variable interest rates during high
rate period are good, because chances are the rates will come down and you will have to pay less.
Federal Loans
Interest rates on variable federal student loans are set by Congress. They are fixed and vary slightly from loan to loan.
Parents pay a little bit more when taking out Federal Parent PLUS Loans.
Private Loans
There are no hard rules for interest rates on Private Student Loans. Those rates range from 8% all the way up to 14%.
Private Student Loans are mostly based on the London Interbank Offered Rate (LIBOR). The LIBOR index is variable and adjusted quarterly.
The "Variable Interest Rate" is equal to the current three-month LIBOR Index plus or minus a Margin. The Variable Rate may change based on the three-month London Interbank Offered Rate ("LIBOR"),
which is updated each quarter (January, April, July and October) as published in The Wall Street Journal on the fifteenth day of the month preceding each calendar quarter, rounded to the nearest
one-hundredth percent (0.01%).
Peer to Peer Loans
Peer to Peer Loans are very similar to Private Student Loans. They are
both private to be exact, but Peer to Peer Loans come from private individuals and not necessary banks or institutions. The rates
could be a little higher than rates on Private Student Loans and they are in the rage of 7% - 25%.
Personal Loans
Personal Loans also charge more for borrowing, because these loans are not secured by any assets. When borrowing money using these loan be prepared for rates in the range of
7% - 19%.
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Student Loan Tips |
Q: Take Out Student Loans As The Last Resort
When you try to get all types of Financial Aid and you do not receive anything or if the amount of money is not enough try borrowing money by taking out loans.
Q: Save Money On Repayment
If you ever are in a position to make an over payment on your loan without spreading your finances too thin, absolutely do it.
Q: Apply For Student Loans On the Same Day
We are not sure if this tip is valid, but if you have to apply for more than one student loan (different banks) do it on the same day. This will prevent the second bank to see your first loan on the credit history and it will be easier to get qualified.
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Important Questions |
Q: Is the interest tax deductible?
Most people can deduct interest paid on Federal Student consolidation Loans. Consult your tax advisor for more information.
Q: Which loan provides the lowest rates?
The Federal Perkins Loan has the lowest interest rate of 5%, as it was designed for students with exceptional financial need.
Q: How is the interest rate determined?
The interest rate is determined by taking a weighted average of the interest rates on all loans to be consolidated and rounding up to the nearest 1/8 of 1% or 8.25%, whichever is less.
View All Questions
Economic hardship and rise in Student Loan Defaults forced law makers to
reduce interest rates on student loans provided by the U.S. Department of Education. If you happen to have Federal Subsidized Loan
your monthly payment should come down if the loan was made on or after July 1, 2008. Look up rates by visiting Interest Rates Center.
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