Fixed-Rate Private Loans Now an Option

U.S. Bank and Wells Fargo recently announced that they are now offering college students the chance to take out a fixed-rate private student loan. This latest development indicates the end of the monopoly that variable rate loans held over the private student loan sector. Now those who need to borrow more than their federal loans can cover – which is the majority of student borrowers, as it turns out – can weigh their options between fixed and variable rate private loans.

Private loans are the norm for most college students, as federal loans are typically capped at a meager $31,000, according to an article published in The New York Times late last week. With most public four-year universities costing students more than $40,000 for a bachelor’s degree, it is clear that students and their families still have to make up the $9,000 difference not covered by federal loans – and that is only if students receive a full $31,000 from the government and if their tuition is exactly $40,000 for all four years of learning. Most major public universities have a heftier sticker price, with the University of Texas in Austin averaging $42,648 total for in-state tuition, not including the price of books and living, which can easily add another $5,000 to the bill per academic year, according to the National Center for Education Statistics. Those who decide to earn a degree from a private institution can expect to pay approximately twice as much on their education, further driving up the need for a private loan to cover what federal loans cannot accomodate.

A fixed-rate private student loan is exactly what it sounds like – a private loan where borrowers will stick with one rate throughout their entire repayment period instead of having their interest rate fluctuate. Private student loans tend to have higher interest rates in general in comparison to federal loans, which hover around a 3-4% interest rate. However, fixed-rate loans boast an even higher interest rate from the get-go in comparison to variable interest rates, but borrowers will always owe the same amount each month instead of having to worry about their interest rates climbing higher and higher with each bill. At U.S. Bank, one of the providers of the fixed-rate loan, the annual percentage rate is about 7.8%, while at Wells Fargo, the annual percentage is about 7.29%, though individual circumstances can push that rate up to a whopping 14.21%, according to The New York Times article.

The biggest benefit for borrowers who explore the fixed-rate loan option is the certainty of knowing exactly how much they will owe each month until their entire loan is paid off. Some will pay more for this security, but for those who value certainty, the extra money is well worth the peace of mind. The introduction of the fixed-rate option also does not affect those who prefer to stick with variable rate private student loans; instead, it is only added as another option to help students pay off their college debt.

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