College Loan Interest Rate (Learning with Interest)
A huge part of understanding college loans is getting to know the college loan interest rates that you face. Each loan has its own rate and the can vary greatly depending on the lender, the program and the amount needed.
Understanding college financial aid can be a fairly huge task. There seems to be a whole language geared to the simple issue of funding your higher education. As you work on your financial aid package, you inevitably come upon the loan section so you need to have a decent understanding of loans. You should know how they work and what benefits they are to your education.
Loan Interest Rates Basics
Interest rates on federal loans for education are based on the “91-day” interest rate from the US Treasury. It changes each year on July 1st after having been set during the Treasury auction in May of the current year. One form of federal aid is based on this and is actually known as the 91-day or 13-week T-Bill. The interest rates on federal college loans tend to be considerably smaller than on any other loan in the market. You can find private loans that are in completion with the federal standard, but you will not find one with a better interest rate or an easier loan approval process.
Fixed vs. Variable Interest Rates
You will find that you can choose loans with different types of interest rates. Choosing which type of rate you want will depend on your personal preference. Each has its benefits and drawbacks so it just depends on which one you feel more willing to repay.
Fixed – fixed rate loans have a defined amount of interest that will not change during the term of the loan. When you go to repay the loan you will have a fixed payment amount which allows you to know exactly how much you will pay each month. You can schedule accordingly and make payments without much forethought. You do not, however, benefit from low rates in the market that would lower your payments at one time or another.
Variable – variable interest rates mean that your payment may change monthly or even yearly as the market changes with the US Treasury. There will be times that your payments will decrease significantly and times when it may increase sharply.
You can benefit from the knowledge that these types of loans are capped, at least with federal loans, at 8.25% so you never have to worry that the interest rate will shoot to 20% or more and your payment jump to an extra digit!
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