Think twice before taking out a private student loan

Factors such as customer service should also be considered, Kantrowitz said. Is there a helpline if you need to contact someone on the weekend? Can you update your address or contact information online?

Private lenders include Sallie Mae, which lent to more than 397,000 households in 2021 (“more than any other private lender,” according to its regulatory documents) and Citizens Bank, as well as online lenders like College Ave and SoFi.

At least a dozen states also offer student loans through special programs, typically to state residents attending state college. Borrowers shouldn’t assume that the rates and terms of state agencies are better than those of private for-profit lenders, Ms Streeter said. Be sure to check the details.

Here are some questions and answers about student loans:

Mr. Kantrowitz recommends that your total student debt be less than your expected salary for the first year. If your debt is less than your annual income, you should be able to pay off your student loans in 10 years or less, he said. If you plan to earn $ 55,000, the average starting salary for a four-year graduate in 2021, your total loans should fall below that amount. A similar rule applies to parents, he said. They shouldn’t borrow more than their annual income for all their children combined.

Federal student loan interest rates are set annually and apply to all new loans made during a given academic year. The rate is fixed for the entire duration of the loan. Rates for university direct loans are currently 3.73 percent. But they are expected to rise to 4.99% for loans made starting July 1 through June 2023. (Federal loan rates are set each spring and are tied to the 10-year Treasury note, using a formula set by the The Department of Education hasn’t officially announced the new rates, but Mr. Kantrowitz and others are projecting them based on the 10-year Treasury bill auction that took place on Wednesday.)

While it sounds like a big leap, the effect on a borrower’s monthly payment is only about $ 3 more for a student who borrows the first-year maximum of $ 5,500 and pays off the debt in a standard term of 10. years, according to Bankrate.com’s loan appraiser.

Rates on private loans vary depending on the lender. Many are currently advertising fixed rates ranging from 3.2% to over 14% and floating rate loans starting at around 1%. But rates on fixed-rate and floating-rate private loans are expected to rise as the Federal Reserve continues to raise its benchmark interest rate, said Greg McBride, chief financial analyst at Bankrate. “Private student loans are also on the rise.”