by William Blake
Changes in Student Loan Structure
As of July 1, 2006 Stafford loans became fixed rate loans. This was not a new idea. Years ago all Stafford loans had a fixed interest rate. In time the structure changed and they became variable rate loans. Now they have again taken their original structure.
Some lenders make up for what they loose in interest rates by charging fees. In general 3% fees charged on a loan is the same as a point of interest. Therefore, if they keep to the restrictions on the interest rate yet charge you a loan origination fee or loan insurance then they recover what they are missing in interest payments right up front. Some lenders are willing to extend credit and waive the customary fees.
Interest Rate Increases
The interest rate on loans has risen greatly over the past few years. The PLUS student loan has gone up from 6% to 8.5%. That makes this loan quite a bit more expensive than before. 2.5% interest increase means that you loan is going to cost you hundreds of dollars more a year than it would at the lower interest rate.
You can visit www.bankrate.com/brm/mortgage-calculator.asp to see exactly how much your loan will cost you at a given interest rate.
The Future
There are no guarantees. The rates can change, since they’re similar to variable rate home loans, even after the loans are funded. Predicting interest rates, both near term and long term, is a task that challenges even the finest financial experts. If it were otherwise, the bond market would be a pretty dull affair (which it’s not). So, the best the average student or parent can do is to look to what those experts are predicting.
Finance Websites Give Good Guidance
You can visit Yahoo Finance or other financial websites to see what the experts are saying about interest rates. It is a difficult guess for them and an impossible guess for the average individual. Therefore the best bet is to stick with the experts and follow their lead.
Looking at the 30-year Treasury bill, for example, shows two things: what the government is offering to sell debt for projected out over 30 years, and what the buyers of that debt are willing to pay. As that rate varies, most other long-term rates, such as student loan rates, will vary similarly (though not always exactly).
