Student Loan Interest Rates

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.

Direct Subsidized and Unsubsidized Loan Interest Rates

Direct Subsidized and Direct Unsubsidized Loans (most commonly referred to as Stafford Loans in the past) 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. The interest rates are adjusted annually by the Department of Education. The two types of Federal Direct Loans (subsidized and unsubsidized) come with different interest rates. Subsidized loans are need based, and interest does not accrue while the borrower is in school. Unsubsidized loans are not based on financial need, but interest starts accruing as soon as the loan is disbursed. Undergraduate students enrolled at least half-time may be eligible for a subsidized or unsubsidized loan and graduate or professional degree students may be eligible for an unsubsidized loan.

Direct loan interest rates for the 2013-2014 academic year are set at 3.86% for a subsidized loan, and 3.86% for an unsubsidized loan for undergraduate students. Graduate students may only be eligible for an unsubsidized loan, which is set at 5.41%.

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. The loan is also offered to graduate and professional degree students enrolled at least half-time. The PLUS Loan has a fixed interest rate of 6.41%. In addition, there is a 4.204% loan origination fee for all Direct PLUS Loans.

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.

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