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Why are Student loan interest rates so high?
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2011 Feb 28, 6:10am 2,874 views 2 comments
by LAO ➕follow (0) 💰tip ignore
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Hi LA Renter,
I'm under-qualified to explain WHY Stafford loans have such a high rate now (I, too, have undergrad loans at delightfully low rates!), but I can answer some other questions.
1) Yes, that 6.8% shiner-of-a-rate for the Stafford loan is fixed for everyone right now.
2) You likely could get a lower, but non-fixed, rate on a private loan. PNC (AES, really) set me up with a graduate student loan that was, in Fall 2009, at 4.4% - VARIABLE. This loan is tied to the LIBOR index, all of which was quickly explained to me by an AES loan specialist, but none of which I really understand. That said, PNC (AES) offered me a 0.25% rate reduction for signing up for auto-debit. Which is all good and well, but again, ultimately the rate is still variable.
I suggest this website to see how things may play out for your wife, particularly if you plan on paying back your loans faster than the 20 - 30 years that lenders require you to:
LAO
2011 Feb 28, 3:41pm
Thanks for the info... I think the government knows interest rates are heading toward 10% in the next 10 years or so... As do private insurers... Hopefully my wife finds a job soon after her master program is complete and we can pay off her loan quickly.
I have a Stafford Loan from 2001 that I'm still slowly paying off because it's a ridiculously low interest rate of 2.25%.. And the balance is fairly low and I'm making more than 2.25% in the stock market lately.
But my wife is going back to school for her Masters... and we were looking into Stafford Loans.. All of a sudden they are 6.8%! (Curious if that's a flat fixed rate for everyone... or they lower it based off of top tier credit scores) That's quite an increase from when I took out my loan in early 2000. I would think the interest rates would be at all time lows given the all-time low rates everywhere else!
What's going on?
Would I be able to get a cheaper Private Loan with a very high credit score now than the 6.8% Stafford loan?
NOTE: I was just looking into it and it appears Private Loans would be cheaper than Stafford in the short term... PRIME INTEREST RATE + MARGIN = RATE PAID
Prime currently = 3.25%... + a margin of say .5% (for my great credit)= 3.75% vs. 6.8% stafford (if they don't take into account credit score).
Then again, that PRIME RATE will probably increase every quarter for the next 5 years.. so Stafford fixed is probably the safe bet.
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