If you have a college degree or post-graduate degree, you likely have a good amount of student loan debt. This debt can be crippling for many Americans. Due to COVID 19, many families are facing a different situation when it comes to pay for this year’s college costs.
Today, 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 amount of student loans taken out, but the high-interest rate attached to the loans. The interest rate along with the amount make the borrower feel it is almost an impossible debt to pay off.
The good news is that 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.
Who Does Lower Interest Rates Effect?
Depending on borrower’s position, current debt structure and credit score, not everyone will be able to benefit from 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 at record low rates.
Interest rates might vary from different private student loan lenders. Private loans have some advantages since their fees are normally lower and it can reduce the legal liability for parents considering Parent PLUS loans. The private student loan interest rates will depend on the borrowers and the co-signers credit score.
Fortunately, if you’re currently out of school and working on paying off the loan amount you 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.
However, you may be able to refinance your federal loan for a lower interest rate than what you currently have through a private lender. For those who are out of school and working to pay off their debts right now, private refinancing might be the best way to try and take advantage of these current low rates.
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.
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 student loan are in the best position to benefit from low-interest rates. Taking out a loan right now allows you to get one for an interest rate that is potentially going to be much lower than normal. To be smart about choosing a student loan provider right now, you should be comparing rates from different providers. 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
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. You may want to consider using the In-College Payer to estimate your graduation shortfall so that you could apply 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.