When looking over your student loan offers, there will be a few numbers to look out for. The main one is the principal loan amount, which is the amount the lender is willing to give you. However, just as important is the APR (annual percentage rate) or interest rate which is the percentage you will pay on top of your principle loan amount.
But how do you know what is a “good” student loan interest rate? And how can you compare the rates you’re given? Here’s a rundown on interest rates, the differences between federal and private rates, and how you can find the best offer for you.
What Determines an Interest Rate?
The type of loan you take out will impact your interest rate, and, depending on the loan, there could be quite a few factors that impact the number you’re given.
First, federal student loans, like direct subsidized loans and direct unsubsidized loans, interest rates are fixed by the government. Only federal law can change this number.
However, private student loans are determined by the lender, such as the bank or credit union, and each lender has different requirements and criteria that decide your offered interest rate. The factors that could affect this number include:
- Whether or not you have a co-signer. Most students will need a co-signer, especially if they have little to no job history. If a co-signer is needed, the factors below will also apply to them.
- Your credit score
- Your credit history
- Your credit risk
- Your income
- Your current debt.
All of these factors will affect your interest rate, but they could impact the amount you’re given by the lender, too.
What Are The Federal Student Loan Interest Rates?
Federal student loan interest rates can change from year to year, so it’s important to always look at this number for your current school year.
For the 2022 – 2023 academic year, the fixed interest rates for federal student loans are:
- 99% for direct subsidized and unsubsidized loans for undergraduates
- 54% for unsubsidized loans for graduates
- 54% for parent and grad PLUS loans
What are Private Student Loan Interest Rates?
As mentioned previously, there are plenty of factors that will impact your private student loan interest rate. However, the current averages for 2022 are:
- 3.22% to 13.95% for fixed interest
- 0.94% to 12.99% for variable interest
A fixed interest rate will not change over the lifetime of the loan while a variable rate will change over time with the market. In some cases, variable interest rates can actually be as low as 3% at first, less than a federal loan, but they won’t always stay at this rate. For example, they may jump to 10% in a few years. It is possible to find low fixed interest rates, but this really depends on your and/or your cosigner’s ability to pay back the debt.
How Can You Compare Student Loan Interest Rates?
Finding a “good” student loan rate can feel difficult. After all, the government, banks, and credit unions will all give you different numbers. However, it’s important to not just take the first loan presented to you.
Research is necessary to help you find and compare the best interest rates out there. You’ll want to apply to a few loans to see what you’re being offered, especially if you need private options
Some tools you may want to take advantage of include:
- Student loan term comparison calculators. These can show you exactly how much you need to pay back the loan in a set period of time, or how long it will take you to pay back the loan if you can only afford a certain amount every month.
- Student loan finders. Student loan finders, including ours, can help you uncover not only the best interest rates, but some of the best loans out there for you. It takes your credit, desired repayment plan, and more into account to help you compare your options.
- College financing planners. College financing planners allow you to not only compare interest rates and loans, but they also provide helpful advice to make college more affordable.
What if You Can’t Find a Good Interest Rate?
Even if you can’t find a good interest rate, whether it’s because of bad credit or another issue, you have options. For example, you might want to take the higher interest rate for now and look into refinancing student loans once you land a solid income and career. Many private lenders will work with private and federal loans to help you get a lower interest rate through refinancing and consolidating.
Finding a “good” interest rate can really feel like looking for the needle in the haystack, but it doesn’t need to be. Research and legwork are necessary to finding the best financial options for you. And remember, don’t take the first loan letter that comes your way. Wait until you have a few in hand before signing the dotted line.
Student loans can absolutely help make college affordable, but that isn’t your only option! From scholarships to assistance from colleges, there are plenty of ways to pay for your education. Check out some of the top schools for the largest endowments available to students, our Scholarship Search Tool, and our Student Loan Finder to see what’s available to you.