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Understanding Your Private Loan Interest Rate

Most private student loan rates are variable, which means the rate that you start out with can adjust upwards or downwards. Variable private college loan interest rates are typically calculated based on the Prime Rate or LIBOR plus a margin, determined by you and your co-signer’s creditworthiness. You will receive your private loan interest rate after you and your co-signer complete the online application and receive a private loan credit approval.

Interest begins accruing as soon as your loan is disbursed to the school and will continue to accrue until the loan is paid in full. The interest on private loans is predominantly “simple interest,” meaning that interest does not accrue on interest, only on the principal balance. Credit cards are an example of “compound interest,” where interest accrues on both your principal balance and the interest that you have already accrued.

Improving Your Private Loan Interest Rate

If you received a credit decision, and wish to improve your private loan interest rate, there are several ways to do so, depending on your situation:

1. If you applied without using a co-signer, and wish to improve your private loan interest rate, you will need to find a co-signer. Adding a co-signer may improve your interest rate and origination fee. You may also qualify for an increased loan amount, provided the school certifies you need that amount.
2. If you have already applied with a co-signer, and are unhappy with the private loan interest rate or origination fee given, consider applying with a different co-signer.
3. Although improving your credit (or that of your co-signer) will probably not affect your current loan application, you may be able to qualify for a better private loan interest rate in subsequent years. Some examples of ways to improve credit worthiness include:
   • Making all payment obligations on-time each month
   • Paying off debts, such as credit cards, judgments or loans
   • Increasing your income
   • Resolving any inaccuracies showing on your credit report

Graduate Students & College Loan Rates

If you are a graduate student, it’s important that you understand the different loan products and college loan rates available to you. Graduate students can borrow up to $20,500 in Federal Stafford Loans ($40,500 for certain medical professions), which has one of the lowest college loan interest rates. If you still need money after the Federal Stafford Loan, you’ll want to compare the Grad PLUS Loan at 7.9% to your private college loan interest rate. Remember, most private loan interest rates are variable.

Get more information on Graduate Student Loans.