Changes in Student Loan Structure
Not too many years ago interest rates on Stafford loans and other programs changed from fixed rate to variable rate. Then, as of July 1, 2006 they changed back to fixed again.
Some lenders make up for what they loose in interest rates by charging fees. In general 3% fees charged on a loan is the same as a point of interest. Therefore, if they keep to the restrictions on the interest rate yet charge you a loan origination fee or loan insurance then they recover what they are missing in interest payments right up front. Some lenders are willing to extend credit and waive the customary fees.
Interest Rate Increases
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
For exact amounts, per month, run sample scenarios using a loan calculator, such as that at http://www.bankrate.com/brm/mortgage-calculator.asp
The Future
Financial advisors have a difficult time trying to determine where interest rates are going. It is a good guess at best. There is really no way to be certain how much your interest rate will vary over time. For students and their parents seeking student loans their only option is to base their choices on what the financial advisors are saying and hope for the best.
Finance Websites Give Good Guidance
Among the easier ways to follow those predictions is to look at various interest-bearing financial instruments, such as T-Bills or long-term corporate bonds. By examining those numbers, potential borrowers can get the best available guess about where interest rates are headed. That information is easily gained from any finance website, such as Yahoo Finance or some other personal favorite.
Student loans and other types of loans often vary in conjunction with the Treasury bill. The Treasury bill shows what the government projections are for selling its debt and what the buyers are expected to offer.
Not too many years ago interest rates on Stafford loans and other programs changed from fixed rate to variable rate. Then, as of July 1, 2006 they changed back to fixed again.
Some lenders make up for what they loose in interest rates by charging fees. In general 3% fees charged on a loan is the same as a point of interest. Therefore, if they keep to the restrictions on the interest rate yet charge you a loan origination fee or loan insurance then they recover what they are missing in interest payments right up front. Some lenders are willing to extend credit and waive the customary fees.
Interest Rate Increases
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
For exact amounts, per month, run sample scenarios using a loan calculator, such as that at http://www.bankrate.com/brm/mortgage-calculator.asp
The Future
Financial advisors have a difficult time trying to determine where interest rates are going. It is a good guess at best. There is really no way to be certain how much your interest rate will vary over time. For students and their parents seeking student loans their only option is to base their choices on what the financial advisors are saying and hope for the best.
Finance Websites Give Good Guidance
Among the easier ways to follow those predictions is to look at various interest-bearing financial instruments, such as T-Bills or long-term corporate bonds. By examining those numbers, potential borrowers can get the best available guess about where interest rates are headed. That information is easily gained from any finance website, such as Yahoo Finance or some other personal favorite.
Student loans and other types of loans often vary in conjunction with the Treasury bill. The Treasury bill shows what the government projections are for selling its debt and what the buyers are expected to offer.
About the Author:
Are debt consolidation non profit companies the best way to handle consolidation? Maybe, but not always. Get the full story on the Inside Debt Consolidation website at http://www.insidedebtconsolidation.com
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