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Student Loans: Who Benefits Under New Rules?

 by Ruth Schneider   Posted on August 27 2013

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A law cutting interest rates on student loans to the lowest level in years received President Barack Obama's signature August 9.

So who benefits from the new rules and what are the catches?

Well, for starters, if you are already paying student loans back, you can stop reading now. This does not apply to you. The bill helps future students -- those seeking financial aid now.

Here's what prospective college students need to know about the new legislation:

  • Federal fixed-rate loans (where the interest rate is unchanged year after year) are available for undergraduates at 3.86% and graduate students at 5.41%. Experts recommend tapping out the federal fixed-rate loans, which are limited based on educational level, before seeking private funding.
  • The new variable interest rates offered through private lenders can be as low as 2.05% for undergraduates and 3.6% for graduate students, with those rates locked in for the first year of the loan. The catch: if the economy improves, the interest rate is adjusted accordingly, with a maximum of 8.25% for undergraduates or 9.5% for graduate students. It is likely the interest rates will increase each year, propelling well past those fixed-rate loans. The variable interest rates are offered only by private lenders, the federal government is locked into a separate rate.
  • Private variable-rate loans are available, but not everyone will qualify. Rates advertising 2.25% interest are likely to be only available to those with stellar credit reports. Those with mediocre credit still are likely to qualify for loans, but at a substantially higher rate.

Of course, students need to remember, when budgeting for college, don't stop at tuition. Books, room and board, and even eating and drinking expenses add up. There are loan calculators that can help students figure out school-year finances.

While the funding options available can make paying for college feel like a money maze, it is one that can be navigated.

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