One of the most common questions we see every year are parents wondering, “what is a good student loan interest rate?” This mostly comes down to comparing student loan options and understanding what the best student loans offers.
Sadly, too many families don’t shop around for student loans. Getting one quote simply won’t let you know if you’re getting a good student loan interest rate. You need multiple quotes, and you need to compare the options “apples to apples”.
Parents are the most common cosigners for private student loans. With their credit history and income, a private student loan is much more likely to be approved.
Understanding Your Student Loan Interest Rate
Your student loan interest rate will depend on a variety of factors.
First, if you are looking at Federal student loans (the loans offered from your college’s financial aid office based on your FAFSA results), these loans have a fixed interest rate that is set by the Department of Education each year.
The Federal student loan interest rates are set annually in May for the following July 1 through June 30. The rate you get varies based on your loan type. Undergraduate Direct Loans have the lowest rates, Graduate student loans are higher, and PLUS loans (to both parents and grad students) are the highest rates.
Typically, all Federal student loan interest rates will be “good” for most borrowers.
Private student loan interest rates are going to be based on a variety of factors. Given that the student is typically not working and may not have a credit history, these factors will most apply to the parent or guardian that will cosign the loan (90% of private loans are cosigned for this reason). Here are the factors that will impact your private student loan interest rate:
Private student loan interest rates currently range from as low a 4% to as high as 18%. It’s important to note that each lender also has their own internal metrics – this is why you might get different rates at different lenders. It really can be “not you, it’s them.”
We generally view a “good” private student loan interest rate as those that are close to the same Federal loan rates.
How To Compare Student Loan Options
The key to finding a “good” student loan interest rate is to simply compare your options. With Federal loans, there’s nothing to compare – and you should always take out Federal loans before borrowing private student loans.
Related: Order Of Operations To Pay For College
For private loans, you want to make sure that you’re getting 3 to 5 quotes when you’re applying. You might be worried about your credit score with so many applications, but Experian highlights that all additional inquiries for the same loan type within 30 days don’t impact your score. This means you have a 30 day “shopping window” to compare loan options.
When comparing, make sure you’re looking at all the major factors: interest rate, loan term (how long the loan is), and repayment plan options.
Some loans will have more repayment plan options after graduation – which might be a nice benefit even if the rate is slightly higher.
At the end of the day, the biggest factor in your monthly student loan payment is how much you borrow. Over 10 years of repayment, student loan interest will only be about 21% of your total payments. The rest is simply repaying your principal. So while you want to get as low an interest rate as possible, other factors like repayment plans can be important.
Where To Shop For Student Loans
When it comes to student loans, most people only recognize the “big names” like Sallie Mae and SoFi. But there are quite a few student loan lenders, and all of them operate similarly. Because they all have different sources of funding and internal metrics, the loan rates they offer you can vary.
We compare the best private student loan lenders here. You can also find a small sample here:
People Also Ask
What Is The Average Student Loan Interest Rate?
Among all student loan borrowers, the average student loan interest rate is currently 6.9% APR, according to Education Data Initiative.
What Is The Interest Rate For FAFSA Federal Student Loans?
The current interest rate on Federal student loans ranges from 5.5% to 8.05% APR.
Can I Lower My Student Loan Interest Rate?
There are ways to lower your student loan interest rate, with options that vary by lender. One of the most common ways to lower your interest rate is to enroll in automatic payments.
