Student loan interest rates
Pay attention to the impact of student loan rates
Student loan interest rates are one of the single largest factors when selecting the right mix of financing options to help you pay for your post-secondary education.
The impact of student loan interest rates is a major reason to first examine your options for federal student loans. Student loan interest rates vary, and they fluctuate with the economy. Federal loans generally come with lower interest rates than private loans available through banks or credit unions, due to government subsidies. But you may be able to find private student loan rates that are comparable to the federal interest rates and have other, more flexible terms that align with your needs.
Over time, the accrued interest you'll have to pay on the loan can represent even more than the original amount you borrowed. And the longer your repayment period is, the more interest you will accumulate. That’s why is so important to choose a student loan with low rates.
There are two broad types of student loan interest rates—fixed and variable. As the words imply, fixed rates do not fluctuate, but remain stable for the life of the loan. Variable rates fluctuate based on the broader economy and Federal Reserve policies. The new rates for federal loans are instituted on July 1st of each year. Consequently, private student loan rates can adjust monthly or quarterly throughout the year.
Pay attention to the APR
It’s important to look beyond interest rates as well. One effective way of making valid apples-to-apples comparisons between competing loans is to check the APR (annual percentage rate) of the loan. You'll want the lowest possible APR you can get. An APR is expressed as a percentage and includes the annual cost of a college loan, factoring in both interest and any fees.
An example how student loan interest works
You'll find a host of calculators and other tools online that will help you calculate what you would owe each month on various loans under various repayment plans, based on the student loan interest rate and repayment period of the loan. But to make student loan rates more tangible, here’s an example of how to calculate monthly interest at Citizens Bank (please note, this may vary by lender):
Start by determining the interest rate factor. This is done by dividing the student loan interest rate by the number of days in a year (365.25). Then, you can use the following formula to find your monthly interest payment (remember that interest accrues daily on most student loans):
Number of days since your last payment
Principal balance still outstanding
Interest rate factor
For the sake of argument, let's pretend the remaining balance on your loan is $9,500. Your interest rate is 8.25%. That means, in this example, the interest rate factor is 0.00022587. It’s been thirty-two days since your last payment.
32 days since your last payment
Your $9,500 principle balance outstanding
Your 0.00022587 interest rate factor
$68.66 required interest payment
Therefore, if you sent in a payment of $160 on this day, that payment would be $68.66 interest and $91.34 principal under this example. This would leave you with a loan balance of $9,408.66 at the end of the first month. If you wish to pay more toward the principal (or balance of the loan), you can increase your payment amount above $160 and specify that any funds above the $68.66 go toward the principal.
Now that you understand about student loan interest rates and APR, learn about what private student loan money can be spent on.
Learn more about our affordable Citizens Bank TruFit Student Loan™
Find helpful information about our affordable Citizens Bank TruFit Student Loan™
. If you still have questions, call a student loan specialist at 1-800-708-6684, and we'll help walk you through the process.