Variable Rate vs Fixed Rate Student Loans
Changes in Student Loan Structure
As of July 1, 2006 Stafford loans became fixed rate loans. This was not a new idea. Years ago all Stafford loans had a fixed interest rate. In time the structure changed and they became variable rate loans. Now they have again taken their original structure.
But they can change again. What the Government does, it can undo. Also, because lenders have some flexibility, even official rates can be altered in subtle ways. Many lenders, for example, charge the Federally established origination fee of 3% and the default insurance rate of 1%. Others are willing to absorb those costs to get your business. As a rough rule of thumb, every 3% in fees is equivalent to approximately 1% in interest rate.
Rates and Interest Amounts
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
You can visit www.bankrate.com/brm/mortgage-calculator.asp to see exactly how much your loan will cost you at a given interest rate.
The Future
Financial advisors have a difficult time trying to determine where interest rates are going. It is a good guess at best. There is really no way to be certain how much your interest rate will vary over time. For students and their parents seeking student loans their only option is to base their choices on what the financial advisors are saying and hope for the best.
Finance Websites Give Good Guidance
You can visit Yahoo Finance or other financial websites to see what the experts are saying about interest rates. It is a difficult guess for them and an impossible guess for the average individual. Therefore the best bet is to stick with the experts and follow their lead.
Looking at the 30-year Treasury bill, for example, shows two things: what the government is offering to sell debt for projected out over 30 years, and what the buyers of that debt are willing to pay. As that rate varies, most other long-term rates, such as student loan rates, will vary similarly (though not always exactly).
As of July 1, 2006 Stafford loans became fixed rate loans. This was not a new idea. Years ago all Stafford loans had a fixed interest rate. In time the structure changed and they became variable rate loans. Now they have again taken their original structure.
But they can change again. What the Government does, it can undo. Also, because lenders have some flexibility, even official rates can be altered in subtle ways. Many lenders, for example, charge the Federally established origination fee of 3% and the default insurance rate of 1%. Others are willing to absorb those costs to get your business. As a rough rule of thumb, every 3% in fees is equivalent to approximately 1% in interest rate.
Rates and Interest Amounts
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
You can visit www.bankrate.com/brm/mortgage-calculator.asp to see exactly how much your loan will cost you at a given interest rate.
The Future
Financial advisors have a difficult time trying to determine where interest rates are going. It is a good guess at best. There is really no way to be certain how much your interest rate will vary over time. For students and their parents seeking student loans their only option is to base their choices on what the financial advisors are saying and hope for the best.
Finance Websites Give Good Guidance
You can visit Yahoo Finance or other financial websites to see what the experts are saying about interest rates. It is a difficult guess for them and an impossible guess for the average individual. Therefore the best bet is to stick with the experts and follow their lead.
Looking at the 30-year Treasury bill, for example, shows two things: what the government is offering to sell debt for projected out over 30 years, and what the buyers of that debt are willing to pay. As that rate varies, most other long-term rates, such as student loan rates, will vary similarly (though not always exactly).
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