A frequent question I see through Twitter and our forums is that of interest rates: “where can I get the lowest one?”, “how are federal loan rates different than private ones?” Well, let’s walk through both and figure out exactly how it all shakes out.
Federal Student Loans
In general, federal loan interest rates are considered more attractive because they are all fixed. In a nutshell, this means that during the entire life of the loan (unless you are delinquent or default, aka miss a payment or two), your payments will be stable and never deviate from your repayment plan. There are no crazy jumps in payment amounts due to the economy or greedy banks trying to run you out of house and home to collect your payments.
The current interest rates (2010-2011):
- Unsubsidized Stafford loan: 6.8%
- Subsidized Stafford loan: 4.5%
- Perkins loan: 5%
- Parent / Grad PLUS loan: 8.5%
Private Student Loans
Now, let’s talk about private loans. These in general are considered more volatile and are variable, so they fluctuate with the economy’s performance. That being said, a private student loan isn’t the bad idea isn’t always the bad deal it can be made out to be. I graduated in 2009, and currently have four private student loans on my credit. Of these, three of them were co-signed with my grandmother (thank you!) and one is on my own credit.
There is a lot of talk about private student loan interest rates skyrocketing into double digits, but in my experience… this isn’t true at all. In fast, the highest interest rate I have on my private loans is 6.25%. That’s actually lower than an unsubsidized Stafford loan (the most popular federal student loan product.) The rest of them range between 3.25% and 6%. Granted, these others are lower because of my co-signer, but the same rates can be available for any new student too with a creditworthy cosigner. Best of all, the co-signer doesn’t have to be a direct relative.
Both loan types have their own unique strengths. If you do not have access to a creditworthy co-signer, take out federal loans instead of private ones whenever possible. If you do have access to a co-signer with good or excellent credit, take out as many of the lower interest federal loans as you can and then go for a private student loan with any remaining expenses.
As always, we at Student Loan Network recommend you check out scholarships and grants before ever taking out debt towards your education. Please visit ScholarshipPoints.com and StudentScholarshipSearch.com if you have not already to search for free money for your education.
Image Credit to JB_SUITE2206 on Flickr
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