Don’t Get a Loan Before Comparing Student Loan Interest Rates — Here’s Why

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If you’re borrowing money for school, student loan interest rates are one of the key criteria you’ll want to consider.

“It’s very important that students know the interest rate on their student loans, because the interest rate will ultimately determine how much interest they’re going to be paying dollarwise over the life of that loan,” said Clint Haynes, certified financial planner and founder of NextGen Wealth.

Understanding student loan interest rates is challenging because there’s not an average student loan interest rate to compare loan offers to. Federal loans offered through the Department of Education have fixed interest rates, while private student loan lenders offer loans at different rates depending on many factors including your credit score, income, and employment history.

To make sure you’re getting the best loan product for your situation, here’s what you need to know about comparing student loan interest rates.

What is the interest rate on student loans?

The interest rate is the amount you’ll pay to borrow money. The Department of Education sets fixed rates each year for different kinds of student loans. This table shows what those interest rates are for student loans in the 2016 to 2017 school year and the 2017 to 2018 school year.

Loan Type Borrower Type School Year 2016-2017 School Year 2017-2018
Direct Subsidized Undergraduate 3.76% 4.45%
Direct Unsubsidized Undergraduate 3.76% 4.45%
Direct Unsubsidized Graduate/Professional 5.31% 6%
Direct Grad PLUS Graduate/Professional 6.31% 7%
Direct Parent PLUS Parent 6.31% 7%

Source: U.S. Department of Education

When you borrow from the Department of Education, you’ll receive a loan at the standard interest rate for your loan type no matter your financial situation or credit score.

When borrowing from private loan lenders, there’s much more variation in student loan interest rates and your financial situation matters a lot when determining your rate. For example, our Private Student Loan Marketplace helps you compare interest rates from different lenders so you can figure out how much you’d pay for private loans.

Why getting a lower student loan interest rate makes a big difference

While you can’t shop around to find a lower student loan interest rate for federal loans since rates are fixed, you can — and should — shop around to find the best rate if you take out private loans. This can help you save thousands of dollars over time.

Shopping around for the best interest rate can make a big difference in how much you pay each month and the total amount it costs you to pay off your loans. Say you had a $20,000 loan at 6.80% with a 10-year repayment term. Your monthly payment would be about $230 per month.what is the interest rate on student loans

But, if you were able to take a loan with the same repayment term at 4.375%, your monthly payment would come down to around $206 and you’d save $2,898 over the life of the loan.average student loan interest rate

If you’re comparing two student loans, you can use our student loan interest calculator to help you determine how much a low-rate student loan might save you over the entire loan term.

Should you always take the loan with the lowest interest rate?

When you’re shopping for student loans, knowing what the interest rate is on student loans is important, but a loan’s interest rate is not the only factor to consider.

For example, federal loans can often be a better option for borrowing — even if you could get a lower interest rate on a private student loan — because federal loans have advantages private loans don’t have, such as the opportunity to choose income-driven repayment plans or qualify for the Public Service Loan Forgiveness Program.

If you’re choosing among private loans, you also need to consider factors like the loan repayment term and what your monthly payments will be. If you can get a much lower interest rate on a five-year loan than a 10-year loan, for example, but your payments would be too high for you to afford due to the short repayment period, this loan probably isn’t the best option for you.

And, when comparing rates among private student loans, consider whether the interest rate offered is a variable rate or fixed rate, as sometimes you’re better off choosing a slightly higher fixed-rate loan than a variable-rate loan with a lower rate.

What are variable vs. fixed student loan interest rates?

To understand why you might be better off with a fixed-rate loan, even if the interest rate is slightly higher, it’s important to understand how these different loans work.

  • Fixed-rate loans: As the name suggests, interest rates for these loans never change over the life of the loan. The big advantage is that you’ll have predictable payments throughout the life of the loan. However, fixed-rate loans often have higher interest rates to start than variable-rate loans do.
  • Variable-rate loans: Unlike fixed-rate loans, variable interest rates can change. “Variable-rate loans are tied to some sort of index rate,” Haynes explained. The loan’s index rate could be tied to LIBOR or the Prime Rate, both of which are averages of index rates. “What that rate does will determine if the interest rate on your loan will go up or down.”

You take a big risk with variable interest rates, because if rates rise, your loan rate — and your payments and the total interest you pay — can increase substantially. Of course, interest rates could also go down and your payments would go down with them, however many experts believe interest rates are trending upward.

“Nine times out of 10, for most folks, the fixed interest rate student loan is going to be better,” Haynes said. He explained that the 2008 to 2009 financial crisis was driven, in part, by many homeowners taking on variable-rate mortgage loans. When interest rates went up, mortgage payments went up and lots of homeowners weren’t able to pay — this same risk of increased interest rates and inability to make payments is also faced by student borrowers who take out these types of loans.

While there might be times when a variable-rate loan makes sense, such as if you know you’re going to be paying off your loans quickly, consider whether the risk of your rate going up is worth it.

Comparing student loan interest rates

Now you know the importance of comparing student loan interest rates, so you can make more informed choices when you shop for student loans or student loan refinancing options.

The important thing to remember is, all other things being equal, a lower student loan interest rate is better than a higher one — but you need to consider all of the terms of the loan including whether the rate is fixed or variable and what your loan repayment options are to ensure you get the best overall deal.

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2 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7% variable Annual Percentage Rate (“APR”): 96 monthly payments of $179.28 while in the repayment period, for a total amount of payments of $17,211.20. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.

Information advertised valid as of 5/29/2019. Variable interest rates may increase after consummation.


* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

4 Important Disclosures for Discover.

Discover Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at DiscoverStudentLoans.com/AutoDebitReward.
  3. Aggregate loan limits apply.
  4. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.63% as of April 1, 2019. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please click here for more information about interest rates.                                                                               https://www.discover.com/student-loans/interest-rates.html

5 Important Disclosures for SunTrust.

SunTrust Disclosures

Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.

Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.

©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.

* Offer valid for new Custom Choice Loans for which applications are submitted for a credit decision between 12:00:00am EST on June 1, 2019 and 11:59:59pm EST on August 31, 2019. A 0.50% interest rate reduction will be included in the loan options presented to an applicant during the online application process, upon passing the initial credit review. The interest rate reduction will be applied as of the first disbursement date and will be effective for the life of the loan.

  1. Interest rates and APRs (Annual Percentage Rates) depend upon (1) the student’s and cosigner’s (if applicable) credit histories, (2) the repayment option and repayment term selected, (3) the requested loan amount and (4) other information provided on the online loan application. If approved, applicants will be notified of the rate applicable to your loan. Rates and terms are effective for applications received after on or after 06/01/2019. The variable interest rate for each calendar month is calculated by adding the current index (One-month LIBOR index) to your margin. LIBOR stands for London Interbank Offered Rate. The One-month LIBOR is published in the “Money Rates” section of the Wall Street Journal (Eastern Edition). The One-month LIBOR index is captured on the 25th day of the immediately preceding calendar month (or if the 25th is not a business day, the next business day thereafter), and is rounded up to the nearest 1/8th of one percent. The current One-month LIBOR index is 2.500% on 06/01/2019. The variable interest rate will increase or decrease if the One-month LIBOR index changes or if a new index is chosen. The applicable index or margin for variable rate loans may change over time and result in a different APR than shown. The fixed rate assigned to a loan will never change except as required by law or if you request and qualify for the auto pay discount.
  2. APRs assume a $10,000 loan with two-disbursements and the summer savings rate discount of 0.50% (applicable to applications submitted for a credit decision between 12:00:00am EST on June 1, 2019 and 11:59:59pm EST on August 31, 2019). The high APRs assume a 15-year term with deferred principal payments. The low APRs assume a 7-year term, no deferment and payments beginning 30-60 days after the last disbursement via auto pay from a SunTrust Bank account. See footnote 6 for details about auto pay.
  3. Any applicant who applies for a loan the month of, the month prior to, or the month after the student’s graduation date, as stated on the application or certified by the school, will only be offered the Immediate Repayment option. The student must be enrolled at least half-time to be eligible for the partial interest, fully deferred and interest only repayment options unless the loan is being used for a past due balance and the student is out of school. With the Full Deferment option, payments may be deferred while the student is enrolled at least half-time at an approved school and during the six month grace period after graduation or dropping below half-time status, but the total initial deferment period, including the grace period, may not exceed 66 months from the first disbursement date. The Partial Interest Repayment option (paying $25 per month during in-school deferment) is only available on loans of $5,000 or more. For payment examples, see footnote 4. With the Immediate Repayment option, the first payment of principal and interest will be due approximately 30-60 calendar days after the final disbursement date and the minimum monthly payment will be $50.00. There are no prepayment penalties.
  4. The 15-year term and Partial Interest Repayment option (paying $25 per month during in-school deferment) are only available for loan amounts of $5,000 or more. Making interest only or partial interest payments during in-school deferment (including the grace period) will not reduce the principal balance of the loan. Payment examples within this footnote assume a 45-month deferment period, a six-month grace period before entering repayment, the summer savings rate discount of 0.50% applicable to applications submitted for a credit decision between 12:00:00am EST on June 1, 2019 and 11:59:59pm EST on August 31, 2019, no rate reduction for auto pay, and the Partial Interest Repayment option. 7-year term: $10,000 loan disbursed over two transactions with a 7-year repayment term (84 months) and 7.772% APR would result in a monthly principal and interest payment of $189.71. 10-year term: $10,000 loan disbursed over two transactions with a 10-year repayment term (120 months) and an 8.235% APR would result in a monthly principal and interest payment of $153.33. 15-year term: $10,000 loan disbursed over two transactions with a 15-year repayment term (180 months) and a 8.712% APR would result in a monthly principal and interest payment of $127.35.
  5. The 2% principal reduction is based on the total dollar amount of all disbursements made, excluding any amounts that are reduced, cancelled, or returned. To receive this principal reduction, it must be requested from the servicer, the student borrower must have earned a bachelor’s degree or higher and proof of such graduation (e.g. copy of diploma, final transcript or letter on school letterhead) must be provided to the servicer. This reward is available once during the life of the loan, regardless of whether the student receives more than one degree.
  6. Earn an interest rate reduction for making automatic payments of principal and interest from a bank account (“auto pay discount”) by completing the direct debit form provided by the Servicer. Earn a 0.25% interest rate reduction when you auto pay from any bank account and an extra 0.25% interest rate reduction when you auto pay from a SunTrust Bank checking, savings, or money market account. The auto pay discount will be applied after the Servicer validates your bank account information and will continue until (1) three automatic deductions are returned for insufficient funds during the life of the loan (after which the discount cannot be reinstated) or (2) automatic deduction of payments is stopped (including during any deferment or forbearance, even if payments are made). In addition, the extra 0.25% interest rate reduction for auto pay from a SunTrust Bank checking, savings or money market account will be discontinued if automatic payments are no longer made from one of the aforementioned SunTrust Bank accounts. In the event the auto pay discount is discontinued, the loan will accrue interest at the rate stated in your Credit Agreement.
  7. A cosigner may be released from the loan upon request to the servicer, provided that the student borrower is a U.S. citizen or permanent resident alien, has met credit criteria, and met either one of the following payment conditions: (a) the first 36 consecutive monthly principal and interest payments have been made on-time (received by the servicer within 10 calendar days after their due date) or (b) the loan has not had any late payments and has been prepaid prior to the end of the first 36 months of scheduled principal and interest payments in an amount equal to the first 36 months of scheduled principal and interest payments (based on the monthly payment amount in effect when you make the most recent payment). As an example, if you have made 30 months of consecutive on-time payments, and then, based on the monthly payment amount in effect on the due date of your 31st consecutive monthly payment, you pay a lump sum equal to 6 months of payments, you will have satisfied the payment condition. Cosigner release may not be available if a loan is in forbearance.

6 Important Disclosures for LendKey.

LendKey Disclosures

Additional terms and conditions apply. For more details see 


7 Important Disclosures for CommonBond.

CommonBond Disclosures

A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.

Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.

Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
If you are unable to pay your government loan, the government can refer your loan to a collection agency or sue you for the unpaid amount. In addition, the government has special powers to collect the loan, such as taking your tax refund and applying it to your loan balance.

A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If you refinance your government loan, your new lender will use the proceeds of your new loan to pay off your government loan. Private student loan lenders do not have to honor any of the benefits that apply to government loans. Because your government loan will be gone after refinancing, you will lose any benefits that apply to that loan. If you are an active-duty service member, your new loan will not be eligible for service member benefits. Most importantly, once you refinance your government loan, you will not able to reinstate your government loan if you become dissatisfied with the terms of your private student loan.

If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you are a borrower with a secure job, emergency savings, strong credit and are unlikely to need any of the options available to distressed borrowers of government loans, a refinance of your government loans into a private student loan may be attractive to you. You should consider the costs and benefits of refinancing carefully before you refinance.

If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.

Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.


8 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Student Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of June 1, 2019, the one-month LIBOR rate is 2.43%. Variable interest rates range from 3.99% – 11.79% (3.99% – 11.64% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.90% to 12.19% (4.90% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan. 
  2. Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school.  
  3. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Borrowers whose loans were funded prior to reaching the age of majority may not be eligible for co-signer release. Note: co-signer release is not available on the Student Loan for Parents or Education Refinance Loan for Parents.
3.99%
11.98%
2
Undergraduate, Graduate, and Parents

Visit College Ave

4.50% – 11.35%*,3Undergraduate and Graduate

Visit SallieMae

4.84%
11.99%
4
Undergraduate and Graduate

Visit Discover

3.27% – 10.80%5Undergraduate and Graduate

Visit SunTrust

4.46% – 9.43%6Undergraduate and Graduate

Visit LendKey

3.74%
9.72%
7
Undergraduate, Graduate, and Parents

Visit CommonBond

3.99%
11.64%
8
Undergraduate, Graduate, and Parents

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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