Fixed rate student loans basically aren’t available. Federal loans come closest, although the law can change. If you want the stability of a fixed interest rate, you will have to consolidate your student loans.
The interest rate on private student loans can change from one day to the next. Federal student loans can only change if federal law changes them, which offers some stability. Private loans should be considered as a last resort, if federal loans and financial aid don’t cover your studying expenses.
Funds offered through federal student loans are not increasing as fast as the costs of completing an education. Private loan providers have found a niche between schooling costs and federal funding limits, offering to cover the difference.
Lenders offer Prime interest rates to students with excellent credit, but young students generally haven’t built up this kind of credit. A student is more likely to have very little credit, no credit, or even bad credit. You will need a cosigner with good credit to get a loan, or barring that, you will have to accept a higher interest rates as well as fees.
Current bankruptcy laws make it nearly impossible to have student loan debt excused. This puts a student in an even more dangerous situation than a sub-prime borrower. Current appellate court precedent denies excusing student loan debts through bankruptcy unless the debtor can demonstrate that their financial situation can never improve.
Consolidating student loan debts does fix the interest rate until the loan is paid off. You can pay a lower monthly amount, but you will have to pay for a longer period of time and the final amount will be considerably higher. A lower payment and the stability of a frozen interest rate, however, can make up for the higher total cost in the end.
Student loan consolidation offers various payment plans, and you can switch payment options depending on your situation. With some lenders, you can pay only the interest for a period, in some cases, of four years, allowing you to start your career without having to pay the principle. Graduated payments allow you to start out paying less and work your way up. If you’re in financial trouble, you can switch to a plan which takes payments based on income. And if your financial situation improves, you can always make early payments.
Consolidation allows you the option of paying fixed rate student loans. It is a debt-management technique which allows you the flexibility to choose the payment plan which is right for you, and the stability of an invariable interest rate.