Best Interest Rates Student Loans

Compare rates, and compare them well.

One of the biggest mistakes students make when looking into student loans is they don’t do their research ahead of time. Students often look at the interest rate without getting information about how much money they’ll need to borrow right away and if they have any extra funds left over after paying back the loan. If you are considering taking out student loans, you should take the time to really understand what you’re getting yourself into and what you can afford before signing anything.

Check both Sallie Mae and Nelnet.

The two major student loan companies are Sallie Mae and National Educational Loan Association (NELA). Both offer similar deals, but Sallie Mae is generally known for being more expensive than NELA. You may want to consider comparing interest rates, fees, and terms offered by each company and decide what works best for you.

Keep track of payments.

When you first start school, it can be hard to keep track of how many hours you spend studying and how many days you work. But, it’s important to remember to add up how many hours you spent working while attending class and figure out how much you worked each week. If your paychecks and bank statements aren’t keeping track of these numbers, write down everything down and try to calculate how much you earned per hour. You don’t have to know exactly how much you earned per day – just know that it’s going to help you figure out how much you could have borrowed if you had kept track of how much you were making throughout the semester.

Take advantage of federal and state financial aid programs.

If you qualify for financial aid, use it! Federal grants and scholarships from organizations like the U.S. Department of Education, the Work Study program, and private foundations are available to those who meet certain requirements. Even though you might not think you qualify for government grants, you probably do. Many people don’t even realize that they’re eligible for government assistance, so ask around. State grants and scholarships are also available to qualified individuals including veterans and military members. There are also some great scholarships available through your local community college.

Be aware of hidden costs.

There are a lot of things that can creep up during your education that are hard to spot until later. A big one is tuition increases. Tuition can increase dramatically depending on whether the school year starts early or late, and the number of credits you’re taking. If you don’t plan ahead, you may find yourself having to borrow more money from your parents or friends to cover tuition costs.

Don’t get caught up in debt.

It seems obvious, but there are still plenty of people who get stuck in high-interest credit card debt just because they didn’t plan ahead. And, it’s always easier to borrow money from someone else than it is to save money. However, if you don’t have enough money saved to pay off your loan, you’ll be forced to pay more money in interest, potentially damaging your future finances.

Know your options.

There are several types of student loans available, and choosing between them isn’t always easy. Some have higher interest rates than others, and some provide different perks. Talk to your advisor, your family and friends, and search online for advice on finding the best loan option for your situation. Before you choose where to apply for a loan, compare the cost of borrowing and the amount of money you would receive after graduating.

Interest rates are generally known to make loan payments higher than they actually need to be. However, interest rates vary widely among different types of student loans. Therefore, to help you understand how much you owe, we have compiled a list of best interest rates student loans. You may find some loans easier to repay than others, depending on their terms. These rates will only apply if you take out a student loan directly from your school. If you choose to go to private lenders instead, you might get a better rate.

Best Interest Rate Student Loans:

Direct Subsidized Loan – Direct subsidized loans carry fixed monthly payments and offer the lowest interest rates. The government pays the cost until borrowers reach 120% of their income. After that point, interest begins accruing at a variable rate. A borrower could end up paying $0 per month after reaching this threshold. On average, direct subsidized loans carry a 0.54% interest rate. This means the money borrowed is paid back with about 54 cents in interest each year. (The 2018-2019 undergraduate federal lending limit for direct subsidized loans is $31,000.)

Direct Unsubsidized Loan – Direct unsubsidized loans do not come with any financial assistance offered by the government. In fact, they carry high interest rates, so borrowers should expect to pay $1,200 over 10 years on an annual basis just to borrow $10,000. Additionally, these loans don’t allow students to defer payment. Borrowers who cannot afford to repay their student loans can choose to enter repayment plans. To qualify, borrowers need to make payments equal to 8% of their discretionary income and maintain low balances. There are two options here: Income Based Repayment and Pay As Your Earnings. Income based repayment lowers payments over time, while Pay as you earn lets borrowers lower their monthly payments by making less than their original plan. On average, borrowers pay $1,200 annually on direct unsecured loans.

Federal Perkins Loan – Federal Perkins loans are available for graduate and professional education programs, including law schools and medical school. Students who attend public, private, and parochial institutions of higher learning can receive this type of loan. Borrowers can obtain a maximum amount of $20,500 per academic year. Undergraduate students can borrow $23,550 over the course of four years. Graduate and professional students can borrow $35,500 over the course of five years. Payments start immediately after graduation and last 20 years. The median interest rate for loans under this program is 5.64%.

Federal PLUS Loans – This kind of loan was created for parents who need to borrow money to send their children to college. Parents can borrow a combined total of $57,650 per academic year. Graduates can borrow a maximum of $37,500 over the course 4 years of schooling. Borrowers can either use the cash portion of the loan themselves or lend it to the university. The median interest rate on PLUS loans is 6.8%.

Best Interest Rate Student Debt:

Students should keep in mind the loan features before applying. Here are the top three best interest rate student debt types:

Private Loans:

Private educational loans are often referred to as private student loans. These loans are issued by third parties. Because they operate outside the auspices of the federal government, they have no protections for borrowers and many of them carry hefty fees. A typical private student loan carries a variable interest rate between 9% and 15%, and a monthly fee ranging between $50 to $300. Most consumers who use private loans assume more risk than those who opt for a federal loan. This is because private loans do not come with the same safety net provided by the federal government. Private loans also tend to charge higher interest rates than federally backed ones.

Federal Stafford Loans:

Federal student loans are administered by the U.S. Department of Education. These loans are popular among both students and parents. These loans come with a fixed interest rate. The current average interest rate is 3.86%. However, there is a cap on the amount of borrowing allowed. Borrowers can only borrow a maximum of $28,000 per academic year. After six months, any remaining funds are rolled into a new loan. Unfortunately, this means that students have to start repaying debt right away.

FFELP Loans:

These loans were designed to help families save money on higher education costs. For example, they cover tuition and fees, plus room and board, books and supplies. They also offer reimbursement for transportation costs and grants for certain activities like internships. Lenders offer various terms to borrowers. The minimum term is six months; however, borrowers can defer payments for up to 60 months. If you choose to defer, you’ll have to pay a fee.

Best Interest Rates Student Loans

Federal Stafford Loan

Federal Stafford loans are direct subsidized student loans offered by the federal government. Subsidized means that they have interest rates lower than what the private sector would charge. The maximum amount you could receive varies depending on your financial situation and how much money you make each year. You may qualify if you meet certain requirements including having no defaulted payments on any other federal debt. If you’re accepted into an undergraduate program, you may only need three years of payment while graduate students could be eligible for six months after graduation. There are two types of federal loans: Direct Subsidized Loans and Direct Unsubsidized Loans.

Private Consolidation Loan

Consolidating your student loan(s) means combining them into one single loan. A private consolidation loan offers you a number of benefits, including a fixed rate, flexible repayment terms, and fewer restrictions. When you consolidate, you take out a new loan with a new lender and often a new set of documents. However, before consolidating, check the regulations at both the federal and state levels to ensure that you are not breaking any laws. Most states allow residents to consolidate their student loans, but some offer specific guidelines, like those related to income, assets, credit history, etc. Check with your school or the Department of Education to learn about your local rules.

Income Based Repayment (IBR) Plan

The IBR plan is based upon your income, family size, and whether or not you have a college degree. Under IBR, your monthly payment will stay constant regardless of how much you owe, but your interest rates will increase as your balance grows. The good news is that there is no prepayment penalty for paying off your loan early under the IBR plan. The bad news is that under the IBR plan, you won’t pay back any of the principal until 2023. But starting today, you can begin repaying your loan immediately without incurring a late fee.

Pay As You Earn (PAYE) Plan

Under the PAYE plan, you repay your loan over 10 years, but your interest rates don’t change. Depending on your income level and total earnings, you may even benefit from tax breaks. If you have a job, this plan is great because you’ll avoid paying high interest rates in the beginning. However, if you find yourself unemployed or underemployed, then the 10-year term might seem long. In fact, if you are planning on getting married, buying a house, or having children in the near future, then you should consider switching to a 5/10 plan.

William D. Ford Direct Loan Program

This option gives you an opportunity to borrow $31 billion to go towards higher education, training, and career advancement. You can apply for this loan up to 30 days prior to your graduation date. Before applying, you must be enrolled full time at least half time and earn less than 150% of the poverty line. Upon completion of your schooling, you will have 10 years to pay back your loan. The borrower who receives the largest part of this loan may also get a refund later on.

Graduated Payment Plan (GPP)

This type of plan allows borrowers to spread out the payment of their loans. For example, instead of making a lump sum payment at once, you could divide your payment into 6 equal installments. Each installment becomes larger over time, which makes it easier to stretch out the repayment period. Your monthly payments will vary depending on your income and the length of the repayment plan.

Public Service Loan Forgiveness (PSLF)

In order to qualify for public service loan forgiveness, you must complete 120 qualifying payments, work for a nonprofit organization for either 2 or 10 years, and still remain employed. Even though you have to fulfill these requirements, the PSLF program will forgive 100% of your remaining balance after 12 consecutive payments.

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