Shopping for a college loan can seem daunting. Chances are you want to find the most competitive loan out there that meets your needs. We are ready to help you by providing information you need to evaluate your options.
Fixed Interest Rates
Fixed interest rates do not change during the life of the loan and your monthly payment amount is generally the same during your repayment period.
Variable Interest Rates
Variable interest rates are tied to an index and change periodically if the index changes.
Variable interest rates are based on either the Prime or LIBOR (London Interbank Offered Rate) Index. As rates change relative to the index, your monthly payment will increase or decrease accordingly. To understand the frequency at which your interest rate is adjusted, make sure you carefully review your loan documents.
Federal Student Loans
Federal student loan interest rates are set on July 1 of every year and the set rate is the same for every borrower.
Private Student Loans
Private student loans are credit-based, so the interest rate is not the same for every borrower. Students with better credit may receive a better interest rate. If you don’t have an established credit history or a low credit score, applying with a creditworthy cosigner may improve the likelihood for loan approval and may lower the interest rate.
How College Loan Interest Rates are Calculated
The amount of interest charged on college loans is calculated as simple daily interest. Simply put, the outstanding principal balance is multiplied by the interest rate and divided by 365 days to calculate one day’s interest amount. So, if you have a $10, 000 loan, with a 7.00% interest rate, the formula would be $10, 000 x 0.07/365 and the amount of interest that accumulates for one day would be $1.92.
