Low Interest Rate Student Loans

 Low Interest Rate Student Loans

In terms of debt, student loan debt provides lower interest rate than most any other kind of debt. Low interest rate student loans can be found from the Federal government, as well as private student loan lenders, so there are plenty of opportunities for everyone to finance a college education inexpensively.

The best, but limited source, of student loan financing comes from the Federal government through the Direct Loan program. Borrowers may access as much as $27,000 in low interest rate student loans from Direct Loans through the Stafford Loan program.

Stafford loans are issued with a low interest rate of 6.8% per year or less. A recent change to the student loan program fixed the interest rate for student loans at 6.8% for the life of the loan, and all loans made today will come with that rate, or occasionally an even lower rate. Unsubsidized student loans issued today will bear the full rate of 6.8%, and that rate is now locked in through 2013.

Subsidized student loans, those which are subsidized by the federal government, have a much lower interest rate. While the student is in college, the interest rate on student loan debt is zero, since Congress pays for the interest so the student doesn’t have to do so. After graduation, the interest rate reverts higher, but is still less than the interest rate on unsubsidized loans. Amounts borrowed in the 2010-2011 calendar school year cost only 4.5% over the life of the loan. In the 2011-2012 school year, the low interest rate fell even lower to 3.4% annually. However, in the future, loan rates may trend higher to 6.8% by 2012-2013, however, the rate while the student is still in school remains artificially low at 0 percent.

Low Interest Rate Private Loans
Several private student loan lenders provide low interest rate loans to their customers. College students who have already borrowed the maximum possible from the Direct Loans program will find ample low interest offerings from private lenders.

Generally, private loans have repayment terms that are more flexible than federal student loans, and have various opportunities for lowering interest rates on student debt.

  • Automatic payments – Private lenders will offer a discount of .25% or more for enrolling in automatic payments for your student loan debt. Students who choose this option will have their monthly payment withdrawn automatically from their checking account on each due date, and will not only save on their interest costs, but also have one less monthly payment they have to worry about paying.
  • Consistent payments – On top of a lower interest rate for making payments on time, a popular lending source, Sallie Mae, offers a 2% discount against your loan balance for making payments consistently while in school. This discount will significantly lower your total borrowing costs, and provides an excellent opportunity to improve your credit score before you enter the job and credit market.
  • Consignors – Getting a consignor for a student loan is a great way to show a lender that you will be capable of paying back your student loans and are confident of it. A parent, guardian, parent, or even a friend, can sign on your behalf, and thus lower your rate even further, often by a magnitude of several whole percentage points. Over the life of the loan, this adds up to several thousands of dollars.

There are few places to borrow money as inexpensively as can be found in other areas. Home mortgages, car loans, credit cards, and virtually every other form of consumer loan is, and will probably forever be, more expensive than the cost to borrow money for an education. This is due mostly to society’s favoring of people who have a college education, and also to the implied understanding that the US government wants more people to graduate from college. To have more people graduate, college has to be more attractive, and more affordable.

But most importantly, remember that student loans carry lower interest rates because they cannot be discharged in bankruptcy. You will have to pay back your loans, no ifs, ands, or buts about it, and nothing will enable you to simply decide not to make payments like you can easily do with other forms of consumer credit. So, while the temptation may be there to borrow more than you need solely for the purpose of school, consider that homes are best paid for with home loans, cars with car loans, and other costs paid for with other sources of credit, not credit intended for education expenses.