The interest rates on private student loans may be fixed or variable. Many 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 your and your co-signer’s creditworthiness. You may not receive your private loan interest rate until you and your co-signer complete the application and receive a private loan credit approval.
Interest will probably begin 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 “compound interest,” meaning that interest accrues on interest and on the principal balance. (Credit cards are another example of “compound interest,” where interest accrues on both your principal balance and the interest that you have already accrued.) The lender may add an origination fee to the principal balance. In addition, outstanding interest on private student loans may be added to the principal balance (capitalized) after a period where you are not making payments, such as after your grace period (if your lender offers a grace period) or after periods of deferment or forbearance. In both situations, interest will accrue on the amount added to the principal balance (capitalized).
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:
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 7.0% to your private college loan interest rate. Remember, fixed private loan interest rates will be higher than variable interest rates.
Get more information on Graduate Student Loans.