Student Loan Interest Rates

A loan’s interest rate is always going to take top priority when looking at the terms. This is where the federal student loans have an advantage over the private student loans. The qualification for federal student loans is based on financial need, which has made it possible for the government to cap the interest rates and keep costs lower.

The current Direct Loan rates are fixed at:

• 5.6% of undergraduate loans
• 6.8% for graduate and unsubsidized loans
• 7.9% for PLUS Loans

This isn’t the case with private loans whose interest rate is connected to the fluctuating LIBOR and PRIME index rate and the borrower’s credit. This translates into typically higher interest rates and overall higher expense for the loan.

Interest rates for private loans also vary depending on whether the money is being school-channeled, or sent directly to the school. If a loan isn’t school-channeled they almost always have a higher interest rate because of the added risk of not having a school involved.

The interest rate is expressed in true form as the Annual Percentage Rate, or APR, which includes all fees associated with the interest. This is the number to use when comparing lenders as this is the true reflection of the total cost of the loan.