Lowering Your Student Loan Interest Rates

Interest rates on student loans will be lowest for those borrowers who use as many subsidized resources as possible. Subsidized resources include subsidized federal loans, grants and scholarships. Private loans often have the highest interest rates for students. Providing for the majority of the cost of college through these less expensive options will lower the amount needed from private loans.

Start with Scholarships and Grants

Starting with scholarships and grants is essential to reduce the amount you will spend on your college tuition. These forms of financing never have to be paid back. Universities offer scholarships to students for academic credentials, athletic abilities and promises of future achievements. For example, schools may offer scholarships to students who promise to fulfill a teaching position in a low income school upon graduation. If you know your career or major ambitions up front, look for scholarships pertaining to those ambitions. You may also find grants are available through your office of financial aid for needy students. Both options should be pursued to the fullest prior to seeking loans.

Look to Federal Loans

There are a number of different federal loan programs to pursue, but the cheapest options are subsidized loans. Subsidized loans are need based. You will only qualify if you are not receiving assistance from family members or benefactors. You will likely also have to meet certain low-income criteria in order to qualify. Unsubsidized loans are not need based and still provide a low-cost financing option. Aside from low interest rates, these loans are also flexible in the future. They have no prepayment fees and may be consolidated with new federal loans without penalty. Options for repayment vary widely, and most give students a chance to secure an income before loan payments are required.

Seek PLUS Loans

PLUS loans are a final form of federal financing available to parents of college students. These loans can be taken for the sum remaining in tuition costs after other avenues have been explored. They are additionally low cost and come with a number of the benefits of federal student loans. In this case, like all federal tuition payments, the loans go directly to the university or college in the sum remaining to cover the cost of tuition each semester. Living expenses, room and board and other items are not covered in any type of federal program. This is when private loans will be necessary.

Close any Gap with Private Loans

Even if you have succeeded in totally covering the cost of tuition through low-interest financing options, you will likely find you have to use more expensive federal loans in order to pay for day-to-day expenses. Consider approaching institutions that offer specific programs designed for students in order to get the best deals. For example, some banks offer student credit cards. These have lower limits, but they are a great way to begin building your credit over the time you attend school while still covering the basic costs of living. Paying down your balance each month by working while you attend school can help you avoid compounding interest costs.


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