Updated: Sep 23, 2022
How much are private student loan interest rates?
Knowing what determines private student loan interest rates can help you save. Learn about APR, fixed vs. variable interest rates, & more with Discover Student Loans.
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Understanding federal vs. private student loans can help you make the best choice for you.
So you got into college. Congrats! Now you need to figure out how you’ll pay for it. While yes, tuition, room and board, books, and other fees can add up to a lot, most students use a variety of sources to fund their education, including family help, savings, scholarships, work-study jobs, grants, and student loans. Once you’ve exhausted sources of free money like savings, scholarships, and grants, you may need to borrow to cover remaining costs. When it comes to loans, you might decide to take out federal student loans, private student loans, or a combination of the two.
First, let’s cover some student loan basics. Knowing a few common terms used to describe student loans can help clarify things, and also make the whole subject seem a little less intimidating.
Federal |
Private |
|
Lender | Government | A financial institution like a bank or credit union |
Subsidized? | Sometimes, based on financial need | No |
Interest rates | Fixed rates are set every July 1 | Fixed or variable, with rates varying depending on the lender, as well as the borrower’s (and/or cosigner’s) credit |
Maximum amount loaned | Annual and aggregate loan limits based on year in school and dependency status | Varies by lender, but generally covers the cost of attendance minus other financial aid and aggregate loan limits may apply |
Origination fee | Yes, a percentage of the loan amount set every October 1 | Generally, lenders do not charge one |
Repayment options | Repayment plans range from 10 to 25 years | Depends on the lender and with fewer options than federal loans |
FAFSA® required? | Yes | No |
Federal student loans are made by the federal government. If you’re a student borrowing for undergrad, you have two options: subsidized loans (which are based on financial need) and unsubsidized loans. The main difference is that with a subsidized loan, the government pays the interest that accrues during school, deferment, and grace periods, while with unsubsidized loans, you’re responsible for paying that interest. (And if you don’t pay it before the grace period ends, it gets capitalized, which means it is added to the principal loan amount.) Interest rates on federal loans are fixed, and there’s a cap on how much you can borrow each year. After graduation, you can choose from different repayment plans, including ones based on income. And if you work in certain jobs or fields, there is the possibility of having your loans forgiven (i.e., wiped out) if you meet certain eligibility criteria.
To apply for a federal loan, you must fill out the Free Application for Federal Student Aid (FAFSA) each year you are in school. The application is available on October 1st each year.
While the government issues federal student loans, private student loans are made by financial institutions like banks or credit unions. And while federal loan terms are standardized, the terms of a private student loan will vary from lender to lender.
Interest rates on a private student loan can be higher or lower than rates on federal loans based on your creditworthiness and/or the creditworthiness of your cosigner, and those rates can be fixed or variable. Repayment plans also vary by lender and are more limited than with federal loans. And with very few exceptions, private student loans generally don’t have loan forgiveness.
To apply for a private student loan, submit an application directly with a specific lender.
Private student loans can be a good option to bridge the gap between federal student loans and total college costs. Discover® Undergraduate Student Loans offer great rates and zero fees. You can also earn cash rewards for good grades, and get an interest rate reduction while enrolled in automatic payments.
FAFSA® is a registered trademark of the US Department of Education and is not affiliated with Discover® Student Loans