An interest rate is a percentage of a sum of loan money that is charged to a borrower by a lender. Interest usually continues to accrue until the loan is paid in full. The rates for each type of student loan can vary according to the year, and to market fluctuations.

Stafford Loan Interest Rates

Stafford loans are known for their low fixed interest rates and flexibility to defer any payments until after graduation. With a fixed rate, once the loan is disbursed, the interest rate will never change. New Stafford loan interest rates are adjusted annually by the Department of Education. The two types of Federal Stafford loans come with different interest rates. Subsidized Stafford loans are need based, and interest does not accrue while the borrower is in school. Unsubsidized Stafford loans are not based on financial need, but interest starts accruing as soon as the loan is disbursed. Both types of Stafford loans are available to undergraduate and graduate students.

Stafford loan interest rates for the 2010-2011 academic year are set at 4.50% for a subsidized loan, and 6.80% for unsubsidized. For the 2011-2012 academic year, rates drop to 3.40% for subsidized loans. Graduate Stafford loans (both subsidized and unsubsidized) have a fixed interest rate of 6.8% through 2013.

Federal PLUS Loan Interest Rates

The Federal Parent Loan for Undergraduate Students (PLUS) enables parents and legal guardians with good credit history to pay education expenses of dependent children attending an approved college or university. As of July 2010, PLUS Loan interest rates became fixed for all new PLUS Loans at a rate of 7.9%. There are additional options regarding interest rates for the PLUS Loan, such as an interest rate credit when payments are set up for automatic debit from a bank account, and the ability to deduct interest from taxes under the Hope Education Tax Credit.

Parent and Graduate PLUS loans originated in the 2010-2011 academic year are set at 7.9% fixed APR.

Private Student Loan Interest Rates

Private student loan interest rates are calculated based on a published index such as the Prime Rate or London Interbank Offering Rate (LIBOR) plus a "spread" or margin based on your credit score and history. If a cosigner is required, your interest rate will be determined based on your credit and your cosigner's credit. Private loans usually carry a variable interest rate, meaning the rate will fluctuate over time. Interest begins accruing upon disbursement of the loan.

It is not possible to determine your exact rate unless you apply for a private student loan. However, you can estimate your interest rate based on your credit report. The more late payments, overdrawn accounts and other credit issues there are, the more likely your interest rate will be higher. If you apply with a credit-worthy cosigner, you might be eligible for a lower interest rate.

Some private student lenders offer repayment discounts to those who keep an excellent payment history and/or enroll in automatic payments. The typical discount is 0.25% for signing up for automatic debit (also known as ACH). It is recommended that you discuss the full range of benefits with your lender.