Student loan rates

Since out of the three financial aid tools of work study, grants and loans student loans are the only aid that is to be paid back the student loan rates matter a great deal when making the choice of which loan to take up. Previously the federal government charged lower interest on the federal student loans and it was the private lenders that charged more private student loan rate. But recently the interest rates have gone up for all sorts of student loans. Although the student loan rate is still low when we run a historical comparison but from the past few years it has become more expensive to take a student loan.

The two sources of loans i.e. the private lenders and the federal government sources four loans in general not counting the numerous private loans:

  • Federal Stafford Loan
  • Federal Plus Loan
  • Federal Graduate Plus Loan
  • Federal Consolidation Loan

In order to qualify for any of the four loans the student has to file for financial aid with FAFSA. The FAFSA application checks the students for financial need and eligibility for the federal loans. The two programs under the federal loans are Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. These two programs are administered and overlooked by the Department of education. Both these programs offer two loans one for students called the Stafford Loans and one for parents called PLUS loans. Educational institutions can either participate in both these programs or can become a part of one of these. The most common way of participation is in one of the two programs.

Federal Stafford Loan

This loan comes under the FFEL program of federal loans and is available to students. The eligibility of applying for the loan is tested by FAFSA application initially and then separate loan specific criteria apply. The funds for this loan are given to the student through the financial aid office of the school. The instructions are also given by the school on how a student can apply for this loan but only if the school is a direct loan school. Some of the schools are FFEL schools and in order to get a loan while studying in these schools you will have to choose a lender for yourself. The FFEL schools also suggest some lenders to the students but the choice is entirely up to the student and he can choose any lender he pleases. If given a choice of choosing your lender always compare student loan rates and choose the lender who offers a loan at the lowest rate.

Students can not borrow more then their cost of attendance. After July 2006 the student loan interest rate for Stafford loans has been fixed at 6.8%. There is an additional fee charged of 2.5% but some lenders may pay this fee on the student’s behalf. Look for a lender who would pay the 2.5% of fee for you. The Stafford loans are the biggest source of student loans in the US and the loan is very competitive being a federal government funded loan. The student loan interest rates have been going high every year and it is better to apply before June of the current year to avoid paying higher student loans interest rate. Before June 2005 the low rate student loan was at 3.37 percent which increased to 5.3 percent after June 2005. After June 2006 however, the rate has further increased to be 6.8%. It is better to take fixed rate student loans. The interest rates student loans for Stafford loans were 8.19 percent for 2000-2001. Then the loan rate fell to 5.99 percent.

Plus Loan

PLUS loans are the federal student loans given out to parents. The parents of under graduate students can apply for these loans to pay for the education of their child. The child has to be studying at least half time at the institution. This loan is available to parents through both Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. As this loan is being given to parents and not the student the parent is liable to pay it back and there is a credit rating requirement for being eligible for this loan. Before applying for the PLUS loan the parent will have to fill in the FAFSA application. It is advised that families and parents should apply for FAFSA even if you think that you do not qualify for aid. If the student is studying in a direct loan school then the parent will receive the loan money and necessary instructions for application from the school. If the school is enrolled in the FFEL program then you will have to choose your own lender. The school can advise you on which lender to choose but it is better if you conduct a thorough search for the low rate student loans or the fixed rate student loan according to your requirements.

The interest rate applicable on PLUS loans is 7.90 percent for direct loans (PLUS) and 8.50 percent for FFEL loans (PLUS). These rates apply after July 2006. The fee on this loan can be up to 4 percent and many lenders can pay this fee on your behalf. Depending on the amount of loan the repayment duration can be extended to 25 years.

Federal Student Loan Consolidation

The consolidation student loan can help you conso0lidate all of the federal student loans that you have taken to finance your studies. After the student loan consolidation rates apply your monthly payments can go considerably down and all your monthly payments covert into one payment per month for all loans. Student loan consolidation rate can also enable you to pay fixed interest on your loan. Student loan consolidation interest rate varies from lender to lender.

Career And Technical Training Loans

Career or technical training program loans are being offered by a number of lenders. The loan that you choose yourself should be chosen after carefully analyzing the various factors that will determine your loan pay back terms and amount. Look for lower interest rates, preferably fixed interest rates and flexible pay back terms.