Back to School FYI: Student Loan Interest Rates FAQ
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Plenty of single moms (and new graduates) plan to go back to school to work toward a Bachelor’s or Master’s degree. It’s a given that most of these same moms will be applying for financial aid and likely accepting student loans as part of the package. Here are a few facts and frequently asked questions about student loans that is valuable information whether you are a mom going back to school or a recent high school graduate.
Student loans have become a fact of life for college students in the United States today. Unfortunately, these loans can be confusing and most students do not understand them. Because of this, many students do not know what they are getting into when they take out their loans. A little basic knowledge can go a long way towards remedying this confusion.
What Are the Current Interest Rates for Student Loans? The APR for student loans varies based on the type of loan. Right now, a subsidized Stafford loan has a fixed interest rate of 3.4 percent per year. A unsubsidized Stafford loan has an interest rate of 6.8 percent per year. This rate is applicable to both undergraduate and graduate students. PLUS loans, which parents take out for students, have an interest rate of 6.8 percent.
The interest rate for private student loans is set by the lender and is determined by a student’s credit score, major, and other factors.
When Does the Interest Rate for Student Loans Change? The interest rate for all federal student loans changes on July 1 each year. The new rate is based on the rates received by the Treasury bills auctioned off in the last week of May. Occasionally, Congress will fix the interest rate for a few years.
What is the Difference Between Subsidized and Unsubsidized Loans? The federal government picks up the tab for the interest on subsidized loans while the student is in school. When a student takes out an unsubsidized loan, he or she is responsible for the interest from the time it is disbursed until it is paid off. While he or she is in school, the interest may be capitalized and added to the principal.
What is the Application Process? All students must complete the Free Application for Federal Student Aid (FAFSA). The student’s school will then determine his or her eligibility for all federal student aid, including loans.
What About Repayment? Students begin repaying their loans six months after graduation. Each student should keep their loan burden as low as possible and try to pay it off quickly. There is no prepayment penalty for student loans.
Student loans are the reason many students are able to go to college, and it is a good thing they exist. But all students should learn the basics of these loans and know what to expect when they sign the contract.
Photo courtesy of Copyright (c) 123RF Stock Photos
Samantha Gregory
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