Federal vs. Private: Comparing Student Loan Interest Rate

When it comes to paying for higher education, many students look at a federal student loan interest rate. Student loans are a way that enable many students to go on to college in order to get their Bachelor's degree or higher. Most of the students who elect to apply for a federal student loan are those that are going into long term education for the professional occupations like medical, business, and engineering.

The problem with student loans is the interest rate that is charged for these. They can take years to pay off and be a constant nuisance to people just getting their start in life after college. However, is the federal student loan interest rate that high compared to a private institution?

Comparing Student Loan Interest Rates

When talking about student loan interest rates, you must always look at the process of comparing the rates. There are several different factors you should be looking at before making your decision of which way to go. Some students will even find it necessary to have a combination of both federal and private student loans to help them in the long run.

Look at the Rates Closely

Before making your decision you should always look at the different interest rates very carefully. The federal student loan interest rate is a set fixed rate at 6.8%. However, there are also a few discounts in the rate over the life of the repayment term. You can get up to a 3% reduction in your interest rate through several different factors.

Private student loan interest rates do not have to be a fixed. There are plenty of them that are, but they can range anywhere from 4 to 11% in rates. These rates can change drastically over the length of the term.

Repayment Periods

Besides the interest rates of the loan, you should always be aware of the repayment periods, and or penalties in the repayments. Federal student loan interest rates are based on the fact that they will be repaid over a certain period of time. This is most commonly a period of 10 years.  However, the rate my fluctuate according to the term. Repayment, however, does not start until the student has graduated.

Private student loans, on the other hand, will need to start their repayment period while the student is still in school. These monthly payments are due each month for the length of the term.

Determine Amount Needed

Many students will have the tendency to put their entire college bill on to a federal student loan. However, this is a very dangerous way to pay for your college. Especially if you are looking at a private student loan. The interest rates can fluctuate wildly and make it difficult to pay off the student loans while you are still in school. It is best to figure out how much you are going to need (counting in gifts, parents, working, etc.) and apply for that amount. While the federal student loan interest rate is much better than a private rate, a student loan is still a big decision. Use caution when applying.


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