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While it is sometimes possible to get a private loan with a very low interest rate, your best bet is with federal student loans. The benefits of a low interest student loan are obvious. A lower interest rate means lower payments, a shortened repayment period and more money in your pocket.
Another added benefit of low interest student loans is the subsidized aspect of many federal student loans. If you get a Stafford Loan or Perkins Loan, you may very well have your interest paid by the government while you are in school and even up to nine months after you graduate.
The Two Major Types of Low Interest Loans
We’ve already established that the major type of low interest student loan is a federal loan. Because of this, we will concentrate on the types of federal loans that offer extremely low interest rates and other benefits to students struggling to finance their education.
Stafford Student Loan
A Stafford student loan is a form of low interest loan that allows students with little to no credit to afford college. This is so because, as a federal student loan, the Stafford loan has different requirements than a standard lender like a bank. Rather than basing your worthiness on a credit score, it is based on whether or not you fall within the eligible income bracket, if you are attending school at least half-time and if you have never defaulted on a loan before.
There is also a limit as to how high the interest rate on a Stafford loan can be. It is currently 8.2%, though most people get a rate that is lower than this. Another added benefit is that you can get a Stafford loan subsidized, meaning that the government will foot the bill for the interest that accrues while you are in school. Stafford loans are also available unsubsidized, though the low interest rate still applies.
Perkins Student Loan
A Federal Perkins Loan is another form of federal loan that provides many options for borrowers. However, in order to qualify for this loan you need to show exceptional need. In fact, most that qualify also qualify for the Federal Pell Grant—another form of financial aid that requires exceptional need to be eligible. If you do qualify for this type of low interest loan, you will be pleased to know that it is subsidized as well. The Perkins Loan also has the largest grace period of all the loans, meaning you don’t have to pay a dime back on your loan until nine months following graduation.
The interest rate is also the lowest you will find anywhere—a low 5%! You will never get a rate like that at a bank or credit union. This is why federal loans are the true low interest loans. Nothing else can come close to their outstanding rates.
How to Take Advantage of These Low Rates
The path to financial aid success starts with the FAFSA. If you want to secure a federal loan of some sort—or even more preferably, a grant—then you need to have your FAFSA submitted by March 2 of the year you plan to begin attending school in the fall. Once your FAFSA is processed, you will receive a Student Aid Report or SAR, outlining how much money you are expected to contribute to your education financially. A few weeks after that, an award letter should arrive in the mail detailing what types of financial aid you have qualified for and how much money you can or will receive. You will need to return this award letter indicating what financial aid you are accepting.
From then, you will need to follow the specific instructions for securing the type of low interest loan you’ve been awarded. A Stafford loan requires you submit a promissory note, while a Perkins loan requires you to fill out paperwork and submit it directly to your school, as your college of choice will be the lender.
Regardless of the type of loan you end up getting, just always note the interest rate. Even though you may be new to the world of finances and credit, lenders expect you to make responsible and informed decisions. Always educate yourself about a potential loan, even if it does have an enticing low interest rate, before you sign on the dotted line.
Another added benefit of low interest student loans is the subsidized aspect of many federal student loans. If you get a Stafford Loan or Perkins Loan, you may very well have your interest paid by the government while you are in school and even up to nine months after you graduate.
The Two Major Types of Low Interest Loans
We’ve already established that the major type of low interest student loan is a federal loan. Because of this, we will concentrate on the types of federal loans that offer extremely low interest rates and other benefits to students struggling to finance their education.
Stafford Student Loan
A Stafford student loan is a form of low interest loan that allows students with little to no credit to afford college. This is so because, as a federal student loan, the Stafford loan has different requirements than a standard lender like a bank. Rather than basing your worthiness on a credit score, it is based on whether or not you fall within the eligible income bracket, if you are attending school at least half-time and if you have never defaulted on a loan before.
There is also a limit as to how high the interest rate on a Stafford loan can be. It is currently 8.2%, though most people get a rate that is lower than this. Another added benefit is that you can get a Stafford loan subsidized, meaning that the government will foot the bill for the interest that accrues while you are in school. Stafford loans are also available unsubsidized, though the low interest rate still applies.
Perkins Student Loan
A Federal Perkins Loan is another form of federal loan that provides many options for borrowers. However, in order to qualify for this loan you need to show exceptional need. In fact, most that qualify also qualify for the Federal Pell Grant—another form of financial aid that requires exceptional need to be eligible. If you do qualify for this type of low interest loan, you will be pleased to know that it is subsidized as well. The Perkins Loan also has the largest grace period of all the loans, meaning you don’t have to pay a dime back on your loan until nine months following graduation.
The interest rate is also the lowest you will find anywhere—a low 5%! You will never get a rate like that at a bank or credit union. This is why federal loans are the true low interest loans. Nothing else can come close to their outstanding rates.
How to Take Advantage of These Low Rates
The path to financial aid success starts with the FAFSA. If you want to secure a federal loan of some sort—or even more preferably, a grant—then you need to have your FAFSA submitted by March 2 of the year you plan to begin attending school in the fall. Once your FAFSA is processed, you will receive a Student Aid Report or SAR, outlining how much money you are expected to contribute to your education financially. A few weeks after that, an award letter should arrive in the mail detailing what types of financial aid you have qualified for and how much money you can or will receive. You will need to return this award letter indicating what financial aid you are accepting.
From then, you will need to follow the specific instructions for securing the type of low interest loan you’ve been awarded. A Stafford loan requires you submit a promissory note, while a Perkins loan requires you to fill out paperwork and submit it directly to your school, as your college of choice will be the lender.
Regardless of the type of loan you end up getting, just always note the interest rate. Even though you may be new to the world of finances and credit, lenders expect you to make responsible and informed decisions. Always educate yourself about a potential loan, even if it does have an enticing low interest rate, before you sign on the dotted line.
