Low Interest Student Loans

Getting a Loan Tailored For Students Makes A Huge Difference!

To get any Federal student loan, and to be eligible for state student loans and most grants and scholarships awarded by a college, you must fill out the FAFSA. Make no mistake about it, FAFSA is a bother to fill out. It is a five-page, detailed financial report, very similar to a tax return. Many students and families may wonder if it is worth it, particularly if they believe they will not be in the running for any grants or scholarships from the college or the government. Why not keep it simple and just go to our bank when we need a loan?

The reason is interest rates. Federal student loans are on average 2 per cent lower than private student loans, and they simply do not compare with private loans that are not geared toward students.  Two per cent may not sound like much, but most student leave their undergraduate college with around $20,000 in debt, as an average – many with more. On $20,000, 2 per cent is $400 per year. That’s $400 per year added onto the cost of your loan that did not have to be there. What is more, the interest rates on Federal loans are fixed.  The price at which you borrowed the money remains the price. That is not always the case with private lenders, and certainly not when you take out a loan that is not particularly geared to education.

The reason is that, although the government is dead serious about being repaid the money it lent to you, its primary mission in lending the money was to facilitate your education and your ability to be a productive, contributing, tax-paying member of society, not making money off of your loans. Therefore the government can cut you interest rate breaks that private lenders cannot.

Given those stakes, you have to think about what the money you are borrowing is going to cost. Your first choice has to be Federal student loans, and the state student loans. Then and only then, turn to private lenders for their student loan products. The interest rates and the terms for private student loans are more advantageous than those for general consumer loans, although not as borrower-friendly as government programs. Depending on your credit,  consumer loans can be six per cent or more higher than the Federal loan rate. That is $1,200 per year on a $20,000 loan. Private student loan rates are lower than general consumer loans in large part because student loans cannot be discharged in bankruptcy, even if they are from a private lender.

If you remember the difference 2 percentage points can make, you will understand why the low interest that attaches to student loans is important to your future, and why, the lower, the better.