Sallie Mae and Discover have joined with Wells Fargo and five other banks in offering fixed-rate student loans, with Sallie Mae offering a 5.75% on its lowest interest rates.1 This effectively makes it cheaper to borrow money from these private banks than borrowing unsubsidized Stafford loans from the government, which set interest rates at 6.8%.
These rates could even be lower than subsidized Stafford loans if Congress twiddles its thumbs long enough to let the interest rate for these loans shoot back up to 6.8%.
Eligibility, however, is another issue altogether. Those who would qualify for interest rates lower than what the government offers must have absolutely immaculate credit and probably have a co-signer as well. And any savings you get will be negligible, even with Sallie Mae’s interest rate of 5.75%.
And chances are you’d probably end up paying more than on an unsubsidized Stafford loan, since the rates of other banks start at the 6.70% to 6.79% level. If you don’t have a perfect credit rating then you won’t qualify for these rates in the first place. You would probably qualify for the loans with interest rates of 7% or 8% – significantly more than the rates offered by the feds.
Although I have to admit that these fixed-rate loans offered by the banks are easier to work with than their variable rate counterparts. You can easily plan for the payments to make each month without having to worry about a sudden spike in interest rates forcing you to default on your payments. This provides a little extra peace of mind for students that find themselves locked out of grants and scholarship money.
In both cases, however, you’d still need to get a paying job to cover the expenses – something that’s not easy to come by if you don’t plan ahead before taking out some extra college money.