Variable vs Fixed
As of July 1, 2006 Stafford loans became fixed rate loans. This was not a new idea. Years ago all Stafford loans had a fixed interest rate. In time the structure changed and they became variable rate loans. Now they have again taken their original structure.
But they can change again. What the Government does, it can undo. Also, because lenders have some flexibility, even official rates can be altered in subtle ways. Many lenders, for example, charge the Federally established origination fee of 3% and the default insurance rate of 1%. Others are willing to absorb those costs to get your business. As a rough rule of thumb, every 3% in fees is equivalent to approximately 1% in interest rate.
Interest Rate Increases
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
You can visit www.bankrate.com/brm/mortgage-calculator.asp to see exactly how much your loan will cost you at a given interest rate.
The Future
There are no guarantees. The rates can change, since they're similar to variable rate home loans, even after the loans are funded. Predicting interest rates, both near term and long term, is a task that challenges even the finest financial experts. If it were otherwise, the bond market would be a pretty dull affair (which it's not). So, the best the average student or parent can do is to look to what those experts are predicting.
Finance Websites Give Good Guidance
Among the easier ways to follow those predictions is to look at various interest-bearing financial instruments, such as T-Bills or long-term corporate bonds. By examining those numbers, potential borrowers can get the best available guess about where interest rates are headed. That information is easily gained from any finance website, such as Yahoo Finance or some other personal favorite.
Looking at the 30-year Treasury bill, for example, shows two things: what the government is offering to sell debt for projected out over 30 years, and what the buyers of that debt are willing to pay. As that rate varies, most other long-term rates, such as student loan rates, will vary similarly (though not always exactly). - 15224
As of July 1, 2006 Stafford loans became fixed rate loans. This was not a new idea. Years ago all Stafford loans had a fixed interest rate. In time the structure changed and they became variable rate loans. Now they have again taken their original structure.
But they can change again. What the Government does, it can undo. Also, because lenders have some flexibility, even official rates can be altered in subtle ways. Many lenders, for example, charge the Federally established origination fee of 3% and the default insurance rate of 1%. Others are willing to absorb those costs to get your business. As a rough rule of thumb, every 3% in fees is equivalent to approximately 1% in interest rate.
Interest Rate Increases
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
You can visit www.bankrate.com/brm/mortgage-calculator.asp to see exactly how much your loan will cost you at a given interest rate.
The Future
There are no guarantees. The rates can change, since they're similar to variable rate home loans, even after the loans are funded. Predicting interest rates, both near term and long term, is a task that challenges even the finest financial experts. If it were otherwise, the bond market would be a pretty dull affair (which it's not). So, the best the average student or parent can do is to look to what those experts are predicting.
Finance Websites Give Good Guidance
Among the easier ways to follow those predictions is to look at various interest-bearing financial instruments, such as T-Bills or long-term corporate bonds. By examining those numbers, potential borrowers can get the best available guess about where interest rates are headed. That information is easily gained from any finance website, such as Yahoo Finance or some other personal favorite.
Looking at the 30-year Treasury bill, for example, shows two things: what the government is offering to sell debt for projected out over 30 years, and what the buyers of that debt are willing to pay. As that rate varies, most other long-term rates, such as student loan rates, will vary similarly (though not always exactly). - 15224
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