Interest

Understanding interest rates is important when making decisions on selecting which student loan may be best for you.

What is the difference between a fixed interest rate and a variable interest rate?

A fixed interest rate has the same interest rate for the entirety of the loan period. For example if you select a 6% fixed interest rate student loan, the interest rate will remain 6% for the life of the loan.
A variable interest rate will change depending on the interest rate fluctuation in the marketplace. For example if you select a variable interest rate the interest rate may be 5% at the beginning but may increase or decrease over the life of the loan.

Do federal student loans have a fixed or variable interest?

All federal student loans have a fixed interest rate. Federal student loan interest rates are set by Congress each year, based on what is being charged on the bond market.

Can you explain the difference between the Federal Subsidized and Unsubsidized Loans with regards to the interest rate?

If you qualify for a Federal Subsidized Loan, the government pays your loan interest while you are in school, at least half time and continues to pay it during the six month grace period after you leave school. The student will become responsible for paying the interest on a Subsidized Loan once the loan goes into repayment.
If you have a Federal Unsubsidized Loan you are responsible for paying all the interest that accrues on the loan. If you do not pay it while you are in school you will be responsible for paying it all once the loan goes into repayment.
A Graduate Plus Loan and Parent Plus Loan are both Unsubsidized Loans, thus you will be responsible for all the interest that accrues.

Do I have to pay the interest on my loans while I am a student?

If you are enrolled at least half time you should not need to pay the accruing interest on your loans.

How can I pay the interest on my Unsubsidized Loans while I am in school?

Step One- Find your Loan Servicer information on your Dashboard on studentaid.gov
Step Two- Set up an online account with your Loan Servicer
Step Three- Contact your Loan Servicer to discuss setting up interest only payments
Step Four- Set up Autopay if possible and be sure to make monthly payments on time

Do private student loans have a fixed or variable interest rate?

Most private student loan lenders offer both fixed and variable interest rate options. Interest rates on private student loans are set by private lenders and depend on market conditions. Interest rates may vary between lenders.

What are the advantages and disadvantages of selecting a fixed interest rate?

Advantages– The monthly payment will remain the same for the life of the loan which would make your budgeting easier.
Disadvantages– interest rate may be higher at the time of approval and there would be no benefit if interest rates drop.
Note– Most recently interest rates have been increasing not decreasing

What are the advantages and disadvantages of selecting a variable interest rate?

Advantages- Interest rate may be lower at time of approval and if interest rates drop you could take advantage of these lower rates.
Disadvantages– Your monthly payment will be unpredictable, making it more difficult to budget. You will be making higher payments if the interest rates increase.