Little Known Student Loan Interest Rate Facts

How much do you know about your student loan interest rate? Chances are you don’t know as much as you should. Often we get so caught up in our studies that we don’t really think about the details of our academic debt. We simply sign the forms and go to class. Unfortunately, you get hit with the reality of your loans when you graduate and must start repaying them.

Deferred Student Loans

It's surprising how many people do not realize that the student loan interest rate is not halted while the loan is on deferment. Just because you are not paying on the loan doesn’t mean that interest isn’t racking up. You can avoid ugly surprises in the future by being aware of your interest rate and paying the interest throughout your academic career.

You should definitely pay your interest monthly if you are finished with your degree but have received an economic deferment. The economic deferment is given when you truly do not have the ability to pay your loans after leaving school. Once you have qualified, however, your loans continue to accrue interest, and you are much better off paying that interest as you go if at all possible.

Variable versus Fixed Interest Rates

Do you know if your student loan interest rate is fixed or adjustable? This is an important factor of your loan agreement. Adjustable rates have a bad reputation, but can actually be better for you financially than a fixed rate. If you have an adjustable rate, be sure that it adjusts up or down, based on the average interest rates set by the government and financial institutions. If it only goes up, you’re better off with a fixed rate.

If, however, your student loan interest rate is fixed and interest rates drop, you could find yourself paying a lot more interest than is otherwise necessary. If you have inadvertently fallen into this common trap, you should consider refinancing your loans at a lower interest rate. At that time you should opt for the adjustable rate, with the provision that it adjusts accordingly as mentioned above.

Finance Charges versus Interest Rates

Finance charges are not the same as interest. Your loan agreement may contain provisions for the lending institution to charge a finance charge monthly or annually based on the amount owed. This is charged in addition to, not instead of, interest.

If you are being charged finance charges on more than one loan, the student loan interest rate may not make much of a difference in the amount of academic debt you are accumulating. You should consider consolidating your loans so that only one finance charge is applied. This will save you a lot of money in the long run.