Low-Interest Student Loans

low interest student loans For many families, the economic impact of the so-called “Great Recession” left behind damage that’s slow to abate. In June of 2013, for example, median household income in the United States was still 6% lower that the level seen in December of 2007, according to the The New York Times. It’s just taking a long time for the economy to fully recover.

As a result, many families are desperate for low-interest student loans. These are the loan products that will allow students to get the education they’ll need in order to compete in the workforce, but loans like this won’t come with the high price tags that can keep some families out of the loan market altogether.

Financial Aid

Private Student Loans With Low Interest

Few private loans come with the same kind of perks seen in the federal marketplace. It’s rare to see private loan officers cover interest payments, for example. Lenders might also be a little less willing to work on unusual payment programs for students in financial distress. It’s just not the sort of thing a private bank can do and still stay in business. But there are some private lenders who do offer loan products with attractive and low interest rates.

Products like this are designed for students who have excellent credit scores and/or a cosigner who has a great credit score. These students are considered ideal borrowers, as it’s unlikely that they’ll walk away from their responsibilities without paying.

The banks tend to reward this behavior, and compete for the business these students can offer, by offering competitive loans with low rates. Students that don’t have excellent credit scores, and who don’t have relatives who might be willing to share their excellent credit scores, might not be eligible for these low-rate loans. The banks consider loans to people like this a little “risky,” as it might be easy for a person to just walk away from the loan without paying. It might also be hard for people of low income levels to pay their loans back, even though they might want to do so. Banks must account for these risks, and they do so by increasing the interest rate.

Things to Watch For

student loans warning Low-interest student loans can seem a little too good to be true, and in some cases, a little skepticism is reasonable, as some of these loans come with clauses that could make a low-interest loan a very expensive loan.

For example, students who have federal loans sign up for products with fixed interest rates. This means that the amount of interest charged on these loans shouldn’t jump around from day to day or year to year. However, an analysis published by MainStreet suggests that this fixed rate can disappear when students fall behind on their loan payments, and if these students extend the life of the loan by making smaller payments over a longer period of time, they could be spending a significant amount of money. In fact, experts quoted by MainStreet suggest that it’s impossible for these students to know how much the loan will actually cost at the end of the repayment program if they fall behind and extend. Students who keep up with their payments may never have to deal with this problem, of course, but it’s something that all students should keep in mind when they accept federal loans.

Private loans may not have fixed rates at all, meaning that students might sign up for these loans during a time in which money is relatively easy to get and cheap to borrow, and then when they need to repay those loans, they may see their interest rates climb as the stock market climate changes. Students like this could refinance, of course, but a moving interest rate is the catch involved in some low-interest rate loans.

Some private loans also come with clauses that allow the bank to charge fees if a student pays off the balance of the loan early. These clauses are designed to allow the bank to recoup the entire amount of money owed in interest, and often the interest rate on a loan like this is low enough that a student wouldn’t be bothered to pay off the loan early. But it’s still a clause students should watch for before they sign.

But many low-rate loans come with no sneaky clauses or catches at all. They’re designed to help students pay for school, and that’s just what they do. But students can ensure that the overall cost of the loan stays low by:

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Types of Student Loans