Be wary of fixed-rates when shopping for private student loans
August 17, 2011
The student loan industry has undergone a series of changes within the past few months, with private loans seeing a change in philosophy. According to Smart Money, private student loans have traditionally carried variable interest rates, which could rise and fall at any time, but many lenders are now advertising fixed-rate loans, which could change the landscape of college funding.
Much like a fixed-rate mortgage, students will never have to worry about payments increasing, and they will have a much easier time designing their budgets. However, the total cost of the new fixed-rate loans on the market can sometimes be much larger than the variable rate model. Today's fixed-rate student loans start out at 6.25 percent and can rise to 14.25 percent based on a person's credit rating and employment status.
Variable rate loans typically start out at 2.89 percent, but carry the risk of interest rate spikes. Ideally, adults who are looking to head back to college should seek a combination of college scholarships and grants to make their student loans more manageable. Planning ahead and doing research is the best bet to find a payment structure that suits a person's budget.
