Getting low interest student loans is essentially about exhausting your options in terms of federal aid before turning to any sort of private education loan funding.
This is because most federal student loans come with lower interest rates than the majority of private loans that are on the market, and because most student borrowers do not have the financial credentials that would lower their interest rate below what a typical federal loan would exhibit.
Remember that there are essentially four different categories of federal student loans:
- Subsidized Stafford Loans: 3.4% – 4.5%
- Unsubsidized Stafford Loans: 6.8%
- Perkins Loans: 5.0%
- PLUS Loans: 7.9%
These are all essentially what I would consider to be low interest student loans, and when compared to most private college loans, these types of loans will exhibit lower rates the majority of the time. Most private loans will come with interest rates that are above ten percent, unless the student borrower has excellent financial credentials, or their cosigner has such credentials.
To get a low interest private student loan you must excel above the average in at least one of the following criteria:
- Good to excellent credit
- Strong income, and perhaps a solid employment history
- Certain kinds of collateral in place
- Significant down payment
Most lenders will require a borrower to excel in one of the previous areas before they will be able to provide them with a low interest student loan. So for example, a student borrower with excellent credit and an average income may be able to get a private student loan with a relatively low interest rate, and visa-versa.
Borrowers with only good credit and an average income level may be able to convince a lender to give them a more preferable term if they have substantial collateral in place, or a significant amount of cash to use as either collateral, or to give the lender as a down payment.
Remember that to get the best low interest student loans it is first appropriate to apply for federal student loans via the FAFSA before looking to apply for any sort of private student loan funding. Upon receiving notice about the level of federal aid you may be able to receive, it is then correct to go ahead and look for private education loans to fill in the gap leftover.
Just keep in mind that unless you, or your cosigner can excel in one of the previous four categories you will probably not be able to beat the interest rate you would receive for most federal student loans, although you should still be able to get an approval if you at least have these types of credentials in order.