Student loan interest is the price you pay for borrowing money from a lender. Therefore, you will end up paying more money than the amount you initially borrowed from a student loan provider. Thus, a higher student loan interest rate means spending more money, so a lower student loan interest rate is an ideal option.
However, interest rates depend on where you get your loan. Federal student loan interest rates are different from private student loan interest rates, which differ even more among the various private student loan providers. Here’s a closer look at how student loan interest rates work for each type of student loan.
Federal student loans come from the federal government. The federal government sets a standard student loan interest rate for every school year. We call this type of interest rate a fixed rate, meaning the interest rate remains the same throughout the loan’s entire life. So, you won’t have to worry about your payments increasing as you attend school.
All federal student loans come with fixed interest rates. The current student loan interest rates for the academic year 2021-2022 are as follows:
The federal government usually charges interest rates as a percentage of your loan’s total amount. When you apply for a federal student loan, the officers in charge will assess how much student aid you are qualified to borrow. You will end up paying off the entire amount of money you borrowed plus the appropriate interest rate.
For instance, if you borrowed $1,500 in undergraduate student loans. You would end up paying $1555.95 to pay off your student loans at the current rates. However, President Biden has currently suspended interest rates by pausing federal student loan payments until September 30, 2021.
Private student loan interest rates will depend on your credit standing. Generally, if you have a higher credit score, you can access private student loans with lower interest rates. Likewise, lower credit scores will have you paying higher interest rates.
You want to pay smaller amounts on top of the amount you borrow from a private lender, so be sure to compare all your options before settling for one private student loan lender. Here are the current top three private student loan providers with the lowest interest rates for the current month:
Depending on the private student loan provider, you may have fixed or variable interest rates. Variable interest rates change monthly or quarterly depending on the loan policy you signed. Some loan contracts reach an interest cap of up to 25%.
Ideally, you want a lower interest rate on your student loans. Federal student loans have fixed interest rates for any given academic year, which may determine how much money you are qualified to borrow from the federal government to finance your education. Meanwhile, private student loans have fixed and variable interest rates, both of which you can access depending on your credit score.
Regardless of the student loan you intend to get, you need to assess your current financial situation to know if you can pay off the amount you intend to borrow. In addition, expect interest rates to accrue while you are in school, so be sure to lay out all the student loan options you qualify for before purchasing a policy.