Can You Save Money With A Fixed Rate Student Loan?
Up until recently, all student loans came with a variable interest rate. For the borrower, this meant that any changes in the prime rate could make a monthly payment skyrocket. A higher payment takes more more money out of the pocket when least expected and makes paying off the loan take even longer. The Fixed Rate Student Loan eliminates surprises and gives the borrower a payment that doesn't change unexpectedly from month to month. It makes it easier for the borrower to budget for the payment and not have to go broke trying to keep up.
The move to a fixed rate student loan is a relatively new offering by the banks. Currently, the fixed rate loan is found at the major banks, but the smaller banks are expected to join in shortly. Most lenders are advertising the fixed rate on loans that last anywhere from 10 to 15 years, giving the borrower a fixed payment every month.
Fixed rate student loans are more akin to a mortgage or car payment than they are to a credit card. However, the interest rates on the fixed rate has the potential to cost the borrower more in the long run. Rates are typically higher, starting at 6.25 percent and going up to over 14 percent. Technically, tuition could be put on a credit card and paid off with the same interest rate in the same amount of time with interest this high. Is the price of peace of mind worth it?
Student loans are truly a case of caveat emptor, or buyer beware. Never sign on for the first loan that gets approved simply because it's available. Take the time to do the research on as many types of student loan products that are out there. The variable rate student loan tends to come in at a lower rate than the fixed rate ones do.
Ultimately, the decision is up to the person taking out the loan. The federal reserve has no plans to touch the prime rate for some time, and any changes may be minor for some time to come. However, the idea of having peace of mind may make getting a fixed rate student loan more appealing than a variable one.
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