In this scenario, you can see that the monthly payments, interest paid, and total loan payments are all significantly lower than the fixed rate loan. Even if interest rates rise slightly during the 10 year period of repayment, your savings would be significantly more with this scenario.In this scenario, the interest rates rose from 2.76% to 6.81% over the life of the loan.As such, your payments would have risen .52 per month during that time.
Variable rate student loans are the most common when refinancing or consolidating your loans, but fixed rate loans are available.
A fixed rate student loan is one that maintains the same interest rate on the loan for the entire life of the loan.
Every lender is different, but based on excellent credit, the typical fixed rate student loan with no cosigner will charge an interest rate at 7%.
However, the benefit is that your payment would stay the same for the entire duration of the loan.
A variable rate student is a loan where the interest rate can adjust each month based on the current interest rates available.
Right now, interest rates are near all time historic lows, which is a benefit to borrowers.
Many loans use the 1 Month LIBOR average to calculate their interest rate. If you have an excellent credit score, that APR could be as low as 2.76% right now, or it could be as high as 8% or more.
For our example, we are going to assume a 10-year repayment plan at 7% interest on a ,000 student loan.
We’re also going to assume that the loan has no fees beyond the interest rate.