How much do you know about your student loan interest rate? Chances are you don’t know as much as you should. Often we get so caught up in our studies that we don’t really think about the details of our academic debt. We simply sign the forms and go to class. Unfortunately, you get hit with the reality of your loans when you graduate and must start repaying them.
Deferred Student Loans
It’s surprising how many people do not realize that the student loan interest rate is not halted while the loan is on deferment. Just because you are not paying on the loan doesn’t mean that interest isn’t racking up. You can avoid ugly surprises in the future by being aware of your interest rate and paying the interest throughout your academic career.
You should definitely pay your interest monthly if you are finished with your degree but have received an economic deferment. The economic deferment is given when you truly do not have the ability to pay your loans after leaving school. Once you have qualified, however, your loans continue to accrue interest, and you are much better off paying that interest as you go if at all possible.
Variable versus Fixed Interest Rates
Do you know if your student loan interest rate is fixed or adjustable? This is an important factor of your loan agreement. Adjustable rates have a bad reputation, but can actually be better for you financially than a fixed rate. If you have an adjustable rate, be sure that it adjusts up or down, based on the average interest rates set by the government and financial institutions. If it only goes up, you’re better off with a fixed rate.
If, however, your student loan interest rate is fixed and interest rates drop, you could find yourself paying a lot more interest than is otherwise necessary. If you have inadvertently fallen into this common trap, you should consider refinancing your loans at a lower interest rate. At that time you should opt for the adjustable rate, with the provision that it adjusts accordingly as mentioned above.
Finance Charges versus Interest Rates
Finance charges are not the same as interest. Your loan agreement may contain provisions for the lending institution to charge a finance charge monthly or annually based on the amount owed. This is charged in addition to, not instead of, interest.
If you are being charged finance charges on more than one loan, the student loan interest rate may not make much of a difference in the amount of academic debt you are accumulating. You should consider consolidating your loans so that only one finance charge is applied. This will save you a lot of money in the long run.
By: Joe Eitel
Posts Tagged ‘Student Loan Interest’
Little Known Student Loan Interest Rate Facts
May 29th, 2010Consolidate Debt Related to Student Loans
February 4th, 2010
Student loans are eligible for interest deductions on taxes. For example, the student loan interest deduction will allow you to take up to $2,500 as a deduction on any interest you paid on a student loan debt. Of course, the deduction is only good if you are actually using the loan to pay for a qualified program of higher education for yourself, your spouse, or your children – basically, anyone who can be listed as a dependent on your tax forms. To more easily identify the interest payments, consolidate debt related to student loans.
The tax deduction can be claimed if the money was used for college or vocational school related expenses including tuition, fees, books, equipment, room and board, transportation, and supplies. It cannot be claimed if someone else can claim the exemption, you are married filing separately, the loan was made by a relative, or in other limited instances.
Like any tax deduction that is based upon federal student loan monies, any costs you incur have to be reduced non-taxable distributions, other forms of assistance, and other non-taxable payments that were received for educational expenses. Because the world of finance can be confusing to the non-professional, if you have any doubt about whether or not your interest is deductible, you should check with the tax agency and/or a personal financial advisor. He can help you identify ways of managing money expenditures and tracking student related payments. It is hard to keep up with student loan and tax requirements, so you are better asking the professionals to help you on top of the ever changing rules. For example, in 2002 there was a change to the student loan program that discontinued the “first 60 months” requirement on interest paid, and made deductions for voluntary interest payments permissible as well as the required payments that were deductible from previous years. Tax forms were altered to allow the deductions to be taken from either Form 1040 or 1040.
Tax deductions related to school tuition benefits are a great benefit to families who want to help their children obtain higher education but simply cannot find sufficient funding. The costs associated with higher education are a big burden to anyone who incurs them, a tax break of this sort can offer a little bit of relief.
By: Jack B. Blacksmith
To Consolidate or Not to Consolidate Your Student Loans
November 12th, 2009
Finding it hard to find unbiased information on student loan consolidation? Let me help with that. When I graduated from college, I had somewhere around $12,000 in student loan debt. Seeing how I would have multiple payments to different lenders, and fearing increasing rates over time (yes, your rate can vary depending on the loan type and the lender), I decided to investigate a potential consolidate student loan. But before I tell you what decision I made, let me give you a few benefits and problems with student loan consolidation:
Benefits
1. The ability to make a single payment with a single lender, thus reducing the headache of paying multiple lenders.
2. Most lenders offer a fixed rate of interest over the life of the loan.
3. Typically, consolidate student loan companies will offer a lower interest rate than many of your current student loans.
4. Lenders will usually offer a longer repayment period, thus allowing for a lower monthly payment.
5. Student loan interest is tax deductible, thus making a longer repayment period more attractive for tax purposes.
6. Some lenders will even offer an interest rate discount for good payers – more on this in a minute.
7. If you are struggling to find a job, many consolidation lenders will allow a deferment of forbearance, allowing you more time to acquire stable income, and may grant a lower interest rate for doing so, due to the lender accruing interest during the deferment/forbearance period.
Problems
1. Longer repayment periods. Yes, I know I mentioned it as a benefit above, but it can also be a problem. While longer repayment periods tend to reduce monthly payments, the overall interest paid over the life of the loan is more, sometimes much more.
2. Unwillingness to negotiate. During my repayment period, I called to ask if an agreement for a principal deduction could be reached or if there was help from other organizations to pay off the student loan, and absolutely no help was provided by the lender. I guess the felt I already got a good deal with an interest rate of 3.5%
3. Default – Do not, I repeat, do not default on your student loan. Bankruptcy, and any other legal attempts to welsh on student loan debt won’t work – student loans are like cock roaches, they just will not die. Be sure to pay your student loan back.
Alright, now that we understand a few of the benefits and problems, I am going to tell you what I did. I decided to do a consolidate student loan. I felt there were just too many benefits involved. The company I went with was Nelnet, and they offered a 15 year loan repayment period with 3.5% interest and a 1% interest rate discount if I made the first 36 payments on time. What a great deal! As with all things, be sure to research several different offers before selecting a consolidate student loan company.
By: Jeffry Evans