A significant financial aid for pupils with academic ambitions is the student loans. Bad credit student loans, low interest student loans, student loan consolidation are just few of the many facilities that are provided for students to financially aid their education and fund related costs. Loans of this nature principally fund the college tuition, cost of accommodation and cost of books.
Conventionally as per government norms, and the need to cater to the needs of college students, the interest rate has been kept low. In some cases this rate of interest which is also referred to as an APR (Annual Percentage Rate). In some cases these rates change as per a specified index, and are levied within an upper and lower limit of the loan. There are also loans wherein late payments and lesser payments are heavily charged.
The student loans with a fixed interest rate are however very different, and the cost of credit, interest plus other charges that becomes payable per installment is fixed. Which makes the installment a definite amount and payable for every month.
Now, why do we need such loans. There are quite a few reasons and requirements, the first one being a need for cheap loans for the student community. In a 2008 survey it was observed that more than 65% of the students graduating with a 4-year bachelors course had to rely on private, public and governmental loans in order to financially aid their education.
Another important fact that can be highlighted is that more than 80% people who had borrowed loans to receive higher education, borrowed loans such as student consolidation loans, in order to pay off their original student loans. The drawback is that borrowings go around in vicious cycles, and students end up in some unpleasant situations such as a student loan wage garnishment.
About Student Loans with Fixed Interest Rates
A fixed interest rate loan is definitely better than most of the other floating interest loans that are available. This kind of loan is provided by many private lenders, banks and department of education itself. However, we will have a look at these options much later. For now, let us have a look at the features and characteristics of this loan.
- The loan in most of the cases is a secured loan, but if it is of a smaller denomination lenders also consider giving it off as an unsecured loan.
- A positive feature of such a loan is that it does not have a credit rating requisite, and the interest rate that is levied on it does not depend upon the credit score. The logic is simple, that as most of the borrowers are students they would not have any credit history and credit reports. Hence, students have an advantage over the rate of interest.
- The rate of interest of this loan is fixed for every installment. Thus the borrower is able to logically plan out the entire repayment. The rate of interest which is substantially discounted and subsidized can amount to anything between 4% to 10% p.c.pa or APR.
- The repayment of the loan, conventionally, starts after the person concerned has graduated from the course. In some cases the repayment starts immediately after the person commences the course. In the graduating years, the amount of one installment remains quite low and easily payable.
- The last merit that I can state is that the persons concerned with the loan, namely the borrower and cosigner, do not have to be tense about the credit ratings and report implications, as late payments do not have drastic drops and negations. The only drastic implication is a negation of credit ratings, in case of a student loan default, the rate of which is quite low.
Choosing Fixed Interest Rate Student Loans
If you are planning to take up such a loan, then you have quite broad options. These can be divided into 3 classifications such as, government and departments of education, private lenders or lending institutions and lastly banks. You can give preference to the loans from the government as they have almost no drawbacks and are safe for you, provided that you make repayments and installments on time.
Educational Loans by Governments
In the United States of America, there are 4 primary facilities that provide loans to students so that they can fund their own education. The Federal Stafford Loan and the Federal Perkins Loan are directly provided by the U.S. Department of Education. Stafford loans have become fixed interest rate students loans as of July 1, 2006. Perkins loans are charged with 5% interest rate and is subject to several other different limits, depending on the level of the course that the pupil is undertaking. Another educational aid that students can avail is the Federal Direct Student Loan Program, which provides some great low interest loans. The fourth option that one can avail is the PLUS Loan for students.
Taking the challenge of educational aids and funding, many banks, which had earlier abstained from specific loaning, have shifted their focus to the concept of student loans. Major banking icons that provided such loans include Bank of America, Bank of North Dakota, Commerce Bank, Sovereign Bank, etc. These nationally and internationally recognized banks provide governmental loans (regional as well as federal) and also provide several private loans.
There are countless financial and lending institutions that generate fixed interest rate loans. The Citi Group, Sallie Mae, Discover, PNC, Wells and Fargo are some common names of private lenders.
Now, while availing any student loan, take a look at the government loans first, as they are easy to borrow and repay. If they are not enough, turn to the private lenders and banks. A very important task that you need to shoulder during the repayment is to make appropriate provisions for installments and also make all payments on time, you can use a loan calculator, to derive the figures of interest and installments that you need. Avoid borrowing excessively and unnecessarily.