Comparing student loan interest rates is important for parents who are helping fund their child’s college education. Parents who borrow loans to help their children pay for school will typically choose between Parent PLUS Loans and private student loans. Interest rates can vary widely between these products.
Interest rates impact both your loan payments and the total cost of the loan. Conducting careful research now could save you thousands of dollars later. Read on to see how interest rates on parent student loans compare.
1. Parent PLUS Loans charge more interest than other federal loans
One of the first things to be aware of when researching student loan interest rates is that Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduates and postgrads have lower interest rates than Parent PLUS Loans.
|Interest rates for 2017-2018||Who can qualify for the loan|
|Direct Subsidized Loans||4.45%||Undergraduate students|
|Direct Unsubsidized Loans for undergraduates||4.45%||Undergraduate students|
|Direct Unsubsidized Loans for graduate students||6.00%||Graduate or professionals students|
|PLUS Loans||7.00%||Parents and graduate students|
Lower interest rates often mean your monthly payments are lower. They can also mean more of each payment goes toward the principal balance. This can result in a lower cost to repay the loan.
However, as the table above shows, most of the loan options with the lowest interest rates aren’t available to parents.
Because the lowest-rate loans from the Department of Education are only available to students, parents should make sure their children have borrowed as much as they can on their own.
2. Parent PLUS Loan rates are fixed
While Parent PLUS Loans have some of the highest interest rates of the federal loan program, there’s some good news: Parent PLUS Loans have fixed interest rates. This means the interest rate will never change over the life of the loan.
Although many private lenders also offer fixed-rate loans for parents, they might also offer variable-rate loans. While the initial starting interest rate is often lower on a variable-rate loan than a fixed-rate loan, that rate can rise over time. That means your monthly loan payment could increase, making it more difficult to budget or create a payoff plan.
3. Parent PLUS Loans charge origination fees
When considering the cost of Parent PLUS Loans, it’s crucial to consider fees. For Parent PLUS Loans disbursed before Oct. 1, 2018, there’s a 4.264% origination fee.
The origination fee is taken out of the Parent PLUS Loan before being disbursed. That means the amount of money disbursed to the school will be less than what you borrowed.
When you compare Parent PLUS Loans with other loan offerings, take fees into account to understand the total cost of each loan.
4. Parent PLUS Loan rates are always the same
Because Parent PLUS Loans have such high interest rates, parents should consider whether private loans are a better option. Private loans for parents are available from a variety of private loan lenders, including Citizens Bank and SoFi.
When you research private loans, you’ll typically see both variable- and fixed-rate loan offerings. You’ll also find that private lenders show potential borrowers a range of interest rates. For example, as of February 2018, SoFi is offering variable rates from 4.02% to 7.45% and fixed rates from 4.25% to 8.00% when you enroll in autopay.
Private student loan companies provide a range because the interest rate for each loan is determined by different factors, including the borrower’s credit score, financial history, and income.
When parents apply for Parent PLUS Loans, on the other hand, the interest rate is the same for all borrowers, regardless of their specific situation. While parents with an adverse credit history can be denied Parent PLUS Loans, those who are approved will all pay the same rate.
Parents who want to compare private student loans and PLUS Loans will need to submit information to lenders to see rates.
Why it’s important to understand student loan interest rates
Taking the time to understand your student loan options is important. You don’t want to pay more than you need to for your child’s education.
Finding a loan at a lower rate could save you thousands of dollars over the life of the loan. Just be sure other loan terms, including your repayment options, are reasonable before you settle on a loan.
Interested in refinancing your Parent PLUS loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for CommonBond.
5 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3|
|2.47% – 6.30%1|
|3.02% – 6.44%2|
|2.48% – 6.25%4|
|2.79% – 8.39%5|