Student loan interest rate varies from one type of loan to another. The total cost of repayment of a loan is one of the biggest factors in choosing one loan to another. In a world where higher education is one of the defining factors in anyone’s career, the importance of lower interest rates for such loans cannot be overstated. In this short guide, we cover the student loan interest rate for different private and government loans. We also go over other features of the different loans we review.
Government Student Loan Interest Rate
The federal and state governments have a number of loan programs for students. The federal government usually gives subsidized loans to students who need them, as well as unsubsidized loans to students who ask and qualify for them. The interest rate for government student loans varies from 3.4% to 8.5%. The 3.4% interest rate is the lowest interest rate one can hope for in any student loan program, whether government or private. To get such a low-interest loan, you have to show that you qualify for it by filling the (FAFSA). FAFSA is a form that has questions about the prospective borrower’s gross family income, assets and dependents. It is quite a large form and in 2010-2011, it had more than 130 questions.
There are four major types of federal student loan programs. These are Stafford Loans, Perkins Loans, Grad PLUS loans and Parent PLUS loans.
Federal Perkins Student Loan Interest Rate
This loan program has one of the lowest student loan interest rate for any program. The borrower of this loan is charged an interest rate of just 5%. The low interest rate is only one of the benefits. Another of its benefits is that the student does not have to start repayment after he or she has completed their course. There is also a grace period of 9 months after completing school; no interest is charged during this period too.
Stafford Student Loan Interest Rate
The interest rates for different Stafford loans, including for graduate and undergraduate students, varies from one year to another. For the year 2011-2012, it is expected that the Stafford loan interest rate for undergraduate students will drop to a low of 3.4%. This is much lower than the interest rate of private loans.
Unsubsidized Stafford loans are available at a higher interest rate that varies from lender to lender. The unsubsidized Stafford loans are provided under the Federal Family Education Loan Program (FFELP), where the government guarantees private lenders against default from the borrowers.
Grad PLUS and Parent PLUS Loans
The interest rates for Grad PLUS and Parent PLUS loans are 8.5% and 7.9% respectively. Grad PLUS loans are awarded to students who wish to take them, whereas Parent PLUS loans can be taken by the parents of the student. Both the types of loans will look at the borrower’s credit history; bad credit history can result in rejection of the loan application.
Private Student Loans and their Interest Rates
Interest rates for almost all private student loans are declared using the London Interbank Offered Rate (LIBOR) indexes. The rates are defined as X + LIBOR, where X may vary from loan to loan. For example, TruFit student loans have a minimum interest rate of 3% plus 3-month LIBOR, where 3-month LIBOR is the 3-month average value of the LIBOR index.
Private student loans are costlier than government student loans; therefore, a student should always apply for government loans before they get a private one. Even so, sometimes one may not qualify for the government loan, in which case private loans are the right solution. Here are the student loan interest rates of some of the most popular private loans:
TruFit Student Loan Interest Rate
The minimum interest rate you can get with this loan is LIBOR + 3%, and the maximum is LIBOR + 11.25%. The LIBOR mentioned is the 1-month LIBOR. The minimum rates are available to very few applicants only – these are the applicants with the best possible credit score, and a creditworthy cosigner. The loan is available for a term of 15 years. The cosigner is released of any obligation after 36 consecutive payments are made on time. The rates mentioned here may be changed without notice, so do check the website for your loan product for the latest rates.
TruFit Student loans are available from Charter One Bank, as well as from Citizens Bank. Their rates, duration of the loan, as well as other terms are similar.
Chase Student Loan Interest Rate
A division of the JPMorgan Chase & Co, Chase Student Loans is one of the largest lenders of private student loans. Interest rate for their loans varies from LIBOR + 3.40% to LIBOR + 9.00%. The LIBOR mentioned is 3-month LIBOR. They have three different types of loans. These are: Chase Select Undergraduate Loans, Chase Select Graduate Loans and Chase Select Graduate health Professionals Loan. The loans are available for a term of up to 25 years.
Sallie Mae Smart Option Student Loan Interest Rate
This loan is funded by the SLM Corporation, more commonly known as Sallie Mae. It was founded in 1972 as a government sponsored enterprise. In the present day, it is a publically traded company in private hands, and is still is the largest originator of student loans insured by the federal government. The Sallie Mae Smart Option Student Loan is a student loan that is funded by Sallie Mae, and which is offered by a number of banks as a loan product. Its interest rate varies between LIBOR + 2.50% to LIBOR + 9.875%. The LIBOR used is 1-month LIBOR. The loan does not have any prepayment fees.
In the modern world, where specialists are the rule rather than the exception, expertise is first learned by education, and only then by work-experience. Getting an education is becoming more and more costly with time, with higher interest rates to student loans only adding to the cost.
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The programs reviewed here should help you select the minimum student loan interest rate available to you as a student, and save you money, as well as assure you a more successful career.