Student Loan Interest Rates Matter: Here’s Why.
If you’re a student entering or returning to college or graduate school in the fall, you’re probably finalizing how to pay the bill. Most Vermont families (nearly 7 in 10) need financing, in the form of student loans, to pay at least some of their tuition fees that are not covered by savings, grants, scholarships and work-study studies. Here’s what you need to know: Loans are legally binding agreements and borrowed money must be repaid. with interest. It is therefore important to understand what you are getting into when choosing a lender and a loan, and how the interest rate will affect your cost of borrowing.
Mission: Compare before borrowing
Think a few % interest on a loan won’t matter? Think again. What you will ultimately pay has a lot to do with the interest rate.
How much is an interest rate difference in real dollars? You might be surprised. The table above illustrates what you can expect to pay monthly and in total, based on 3 hypothetical rates (5%, 7%, and 9%) that you can find in the student loan market today.
Here’s the thing: In this hypothetical example, for the same amount of money borrowed ($15,000), the monthly payments range from $120 to $156, a difference of $17 to $36 per month. Even a difference of just $17 a month is over $200 a year — money that could be used for other expenses like books or a meal plan. And the total paid over the term of the loan could differ by up to $6,135 based on a 4% interest rate difference.
To learn more about comparing loans and interest rates, go to vsac.org/compare. We’ve done the homework to help you know what to look for when making the best decision for your situation.
Know more. Borrow less.
At VSAC, we understand that student loans can be complicated. Our goal as Vermont’s nonprofit higher education agency is to help students and parents better understand their choices so they only borrow what they need and minimize their cost of education. loan. We want to help families know more so they can borrow less. Here are some other things to consider as you explore your options:
- Fixed vs Variable: While a lower interest rate is a good thing, not all interest rates are created equal. Avoid variable interest rates: These may increase due to market conditions and may cost you more in the long run. Fixed interest rates remain the same for the duration of your loan – this means that they will never increase.
- Beware of the “low advertised price” with asterisks attached: some lenders (like VSAC) let you choose your rate based on your choices, while others advertise a range of rates starting with a low rate that few borrowers actually qualify for, and may include shorter repayment terms of 5 years or other qualifiers. Read the fine print. And if you apply for a loan and get a higher interest rate than expected, pause or cancel the application process and explore other options.
Learn more about VSACs student and parent loans for undergraduate and graduate studies.
- Who are they for? VSAC loans can be used by Vermont residents attending programs anywhere in the United States or abroad AND for all students attending a Vermont school. Learn more at vsac.org/loans.
- What is the rate? For the 2019-2020 academic year, VSAC is pleased to offer a package as low as 4.79% APR when you choose the Immediate Repayment option – lower than the Federal PLUS Parental Loan and our lowest fixed rate ever. We also offer interest only and deferred or deferred repayment options with higher, but still competitive interest rates. If you have already maximized available direct federal student loans (loans borrowed within the students name) and you still need financing, a VSAC loan may be your least expensive option. Learn about VSAC loans at vsac.org/apply.
Do you still have questions or need more information? Contact VSAC – that’s why we’re here. Since 1965, we’ve been helping families save, plan and pay for their college and professional education. Call to speak with a Vermont counselor Monday through Friday, 8 a.m. to 4:30 p.m. at 800-226-1029; or write to us at [email protected].
This story is produced by Vermont Student Assistance Corp., the state of Vermont’s nonprofit higher education agency.