Is Interest Charged On Student Loans?

As there are different types of Student Loans, so the interest rates vary with the types of student loans:

Federal Student Aid Programs:

• For Stafford Loans: Average interest rate for Stafford student loans is 6.5%. And this rate was fixed to 6.8% for the disbursed loans after July 1, 2006. The change from variable to fixed interest rate will not affect if the student has borrowed loan before July 1, 2006. The interest rate for these loans in 2007-2008 is 7.22%.

• For PLUS Student Loans: Similar to the Stafford loans, the interest rate for PLUS student loans is also fixed for disbursement of loans after July 1, 2006 i.e. 7.90 percent for Direct PLUS Loans and 8.50 percent for FFEL PLUS Loans. For PLUS loans disbursed between July 1, 1998 and June 30, 2006, the interest rate was variable, and was specified on every year's July 1. For year 2007-2008, the variable rate for these PLUS Loans in both Direct and FFEL programs is 8.02 percent. Interest is charged on a PLUS Loan from the date of the first disbursement until the loan is paid in full.

• PLUS Loans for Graduate and Professional Degree Students: PLUS loans can also be availed by graduate and professional degree students. A fixed interest rate of 8.5 percent is charged in FFEL program and 7.9 percent in the Direct Loan program.

• Federal Perkins Loans: A low interest rate of about 5 percent loan for both undergraduate and graduate students with exceptional financial need is offered by Federal Perkins Loans.

Private Student Loans:

The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees i.e. 3% in fees is about the same as a 1% higher interest rate.