by William Blake

Changes in Student Loan Structure

Not too many years ago interest rates on Stafford loans and other programs changed from fixed rate to variable rate. Then, as of July 1, 2006 they changed back to fixed again.

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

Though the interest rate changes can be modest, PLUS loans increased from 6.1% to 8.5%, for example. On, say, even as low as $16,000 borrowed, a 2.4% rate difference equals (approximately) a $400 difference in interest charges the first year alone.

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

Financial advisors have a difficult time trying to determine where interest rates are going. It is a good guess at best. There is really no way to be certain how much your interest rate will vary over time. For students and their parents seeking student loans their only option is to base their choices on what the financial advisors are saying and hope for the best.

Follow The Leaders

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).

About the Author:
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