Where Are the Best Student Loan Rates? How to Compare
For many Americans, student loans are a ticket to a better and more prosperous life - after all, college is all about creating an opportunity for a better future. But as the younger generations know well, paying for college is not as easy as it was for their parents, which is why student loans can be immensely helpful tools. That being said, you want to make sure that the interest rate you pay on your student loan isn't one that will have you buried under decades of repayment plans. Learn how to compare student loan rates to find the best loan for your financial situation and your future.
How to Compare Student Loan Rates
1. Make Sure You Are Comparing Actual, Not Average, Rates
The first thing anyone looks at when they begin comparing rates on loans is the promised low rates advertised on the loan provider's website or other marketing materials. It's important to note that these rates are the average rate of all loans under the company, which means that it's not necessarily a number that will apply to you or your finances.
So, when you start comparing rates, make sure that you are comparing rates that are generated by quotes instead of whatever the average going rate is. Why does this matter? Simply put, the interest rate quoted to you takes your finances, your ability to have a cosigner, your estimated tuition costs into account, and your ideal term limit for repayment, all of which will impact the final result of your rate.
More likely than not, that rate is going to be different than the advertised average.
Why Do Actual and Average Rates Differ? The average rate advertised by a loan provider is still a meaningful number because, if nothing else, it gives you a good idea of how fair that company's rate is compared to another. But your actual rate still matters, and the difference between the two matters, as well.
If the interest rate generated by the quote is vastly different than the average rate, it could be a clue that the loan provider is raising the interest rate on you for some reason or it could be that you need to reconsider the information you are putting into the quote calculator.
2. Will You Need a Cosigner?
You may need a cosigner on your student loan, and even better, you might want a cosigner if that means you can get a lower interest rate. A cosigner is someone who agrees to be equally responsible for the debt as you, which means that they are agreeing to pay back the loan if you can't.
A cosigner is a big deal, and for student loans, the most common cosigner is your parent or legal guardian. These are called PLUS loans and they generally have flexible interest rates worth consideration.
The Advantage of a Cosigner
The main advantage of a cosigner is the fact that having one will likely lower your interest rate on your student loan. Generally speaking, the good credit of your cosigner becomes your good credit for the loan, meaning an easy way to cheaper student loan rates is to seek out this type of loan.
3. Is It a Fixed Rate Loan?
You also want to pay attention to fixed-rates on the loan. A fixed-rate is an agreement from the loan provider that they will not be jacking up the interest rate on your student loan at any time during the term limit.
What this means for you in a practical sense is that fixed-rate loans give you a certain sense of stability; your interest rate will not increase for the duration of the loan, which means you can have better control over your repayment plan.
4. Know the Loan Term Limit
The term limit of your student loan is also important, especially for private student loans. While a lot of companies will continue seeking repayment until the loan is paid off in full, other private lenders have term limits that call for balloon payments at the end or that expire and consequentially raise the interest rate. Understand the term limit on your loan and know that, in general, the longer the term limit, the lower the interest rate each year.
Comparing your potential student loan rates is a decision worthy of time and consideration. If you want to be sure that you are getting the best possible interest rate for your higher education needs, then you should pay attention to the advertised rate verses your quoted rate, how much a cosigner can help reduce your interest rate, whether the rate is fixed or not, and if the term limit will expire with higher rates than you started with. To learn more about comparing student loans, visit our student loan comparison page to make the best decision for your future.