As the economy shows only a few signs of improving, the rates of student loans are in question. Have the rates improved since 2015 and 2016? What type of loans are safest to take out for a current student?
The Truth of Student Loan Consolidation Interest Rates
Before the economic slump occurred a few years ago, students were able to easily consolidate student loans that had variable interest rates, especially at large lending companies such as Sallie Mae. However, when the credit crunch took a turn for the worst, so did student loan rates. In the 2015-2016 school year, lenders such as Sallie Mae discontinued consolidation.
Why was consolidation so important?
Consolidating two or more variable rate loans into one loan provides students the chance to lower their interest rates. For instance, several years ago, Sallie Mae would call its customers and offer consolidation, often dropping the interest rate of the newly consolidated loan to 5 percent.
Yet, the truth is after July 1, 2015 all federal student loans had a fixed rate, thus eliminating the absolute need for consolidation. This combined with the fact that student loan companies did not profit from consolidation means that consolidation will not return.
Interest Rates on Subsidized Student Loans
The federal government gives out two types of Stafford loans to students. The first type is subsidized, which means students do not accrue interest on the loan until after graduation. Also, they do not have to pay back the loan until after the grace period following graduation.
5.6 percent is the lowest interest rate in years and should be great news to current and prospective students. The only lower students can go is 5 percent with a Perkins loan, but this type of loan is hard to receive. The government only gives Perkins loans to very low income students.
Meanwhile, unsubsidized loans stay at a 6.8 percent fixed rate. Unsubsidized means that the loan accrues interest from the day it is disbursed to the school; however, students can begin to pay off unsubsidized loans after the grace period following graduation.
What is Best for Undergraduate Student Loans?
Current and prospective undergraduates should always try to receive free money for college first. such as scholarships and grants. The next step is take out loans. Try for Perkins loans first, if the student is on a very low income level. If not, try to lock into the Stafford subsidized loans of 5.6 percent.
If a student must take out more money, look to Stafford unsubsidized loans because they have a fixed rate and are not based on financial need. It is highly recommended to avoid private bank loans or loans from other private institutions at all costs. These loans usually have variable rates that can go up to 12 percent, so be careful.
As students further their education, they should also be proactive in deciding which loans to take out. It is not just the parents’ job anymore, since students will be in debt for 10 years or more. Students should take a vested interest in student loan rates and decide what’s best for them.