If you have a college degree or post-graduate degree, you likely have a good amount of student loan debt. This debt is crippling for many Americans. Due to COVID, many families are facing a different situation when it comes to paying for this year’s college costs. Some are asking the question: How to take advantage of lower student loan interest rates?
Today, many students are forced to take large loans out if they want to continue their education. The obstacle many are faced with is not only the large number of student loans taken out but the high interest rate attached to the loans. The interest rate along with the amount makes the borrower feel it is almost an impossible debt to pay off.
The good news is that federal student loan interest rates are being frozen or lowered. If you currently have student loan debt or you will need to take student loans out this year, you are likely wondering how you make these lower interest rates work for you. At PayForED, we make it our job to offer smart and efficient student loan solutions using our optimized software. Read on to learn more about student loans and interest rates.
Who Does Lower Interest Rates Effect?
Depending on the borrower’s position, current debt structure, and credit score, not everyone will be able to benefit from the lower student loan interest rates right now. Those who are taking out loans through the federal government will get the most from these lower interest rates. Federal student loan interest rates are still at low rates in comparison to prior years.
Interest rates might vary from different private student loan lenders. Private loans have some advantages since their fees are normally much lower and it can reduce the legal liability for parents considering Parent PLUS loans. The private student loan interest rates will depend on the borrower’s and the co-signers credit score.
Fortunately, if you’re currently out of school and working on paying off the loan amount on your own, these low-interest rates could be a great opportunity. When consolidating your federal loans, the calculation uses the weighted average of all your federal loans and does not use current market interest rates. That is a major disadvantage to the federal loan process.
However, you may be able to refinance your federal loan at a lower interest rate than what you currently have. The private lender uses current interest rates, borrower’s credit history, and their income to determine the new loan interest rate.
Variable-Rate Student Loans
New federal student loans are fixed-rate loans, meaning that the interest rate is established at the time of the loan and is the same for the entire time while in repayment. With private student loans, you have the option of a fixed or variable interest rate loan. The variable rates are normally lower especially when you compare them to the federal loan fixed rates.
If you are one of the many who have a fixed-rate loan, you won’t see any changes in your loan, despite many lenders offering lower rates. This is also true for both federal and private loan borrowers. For anyone with variable-rate student loans, your interest rates might be lower due to current rates, even if you’re out of school and paying them off.
Shop Around for Low Rates
Those who are currently looking to take out a new student loan are in a position to benefit from these lower interest rates. With many student loans being offered at a low interest rate, other providers might also begin to lower theirs to stay competitive. This allows anyone looking for a loan to be selective of the provider they go through to help them get the best interest rate available.
If you are applying for a fixed-rate loan right now it’s important to understand how your interest rate will impact you in the future. For younger students who don’t yet have experience with taking out a loan, it might be difficult to think about the amount you owe that far in advance.
An Alternative Student Loan Strategy
With tuition bills coming due and interest rates at low rates, some families may consider inverting the borrowing order. An alternative strategy would be to consider borrowing the money this year even if you have money saved. This would allow the student or parent to lock in existing lower rates now rather than taking on the loans later when the interest rates are unknown. Now with the Secure Act student loan provision, college saving plan money can be used to pay off student debt which reduces your risk.
The PayForED approach projects total debt at graduation. If you are trying to plan ahead this strategy could be beneficial based on the amount you need to borrow and current savings. You may want to consider using thePayForED In-College Payer to estimate your graduation shortfall so that you could apply for this alternative student loan and lower interest strategy.
Get Student Loan Guidance
Navigating student loans and understanding changing interest rates is a lot to take on. Whether you’re looking for your first student loan or you’ve been paying them off for a few years, it’s common to have a long list of questions and concerns. To help get the best support when it comes to student loans, trust PayForED.
Learn more about how you can take advantage of low-interest rates, visit our Preferred Private Lenders.