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Breaking Down Student Loan Interest Rates

Loans. It’s the word that makes every college student cringe and cry at the same time.
What a lot of students don’t realize is that college loans have interest on them. This essentially
means that the $10,000 loan you initially took out will be increased to a higher number by the
time you graduate college. Figuring out what type of interest rate works for you is critical during
the loan application process. So, let’s break it down.
There are two major kinds of loan interests. First we’re going to be looking at variable
interest. With this type of rate, the interest that gets charged onto the loan changes based on
underlying benchmarks. This essentially means that while the variable interest may look cheaper,
it can change overtime to become a higher interest. Because the interest varies, your payment
will in turn vary as well depending on what the interest is.
The other is a fixed interest rate. With this, the interest rate on the loan will not move for
the duration of the loan’s life. While this interest rate will look a little higher than the variable
interest rate, this loan will never fluctuate or change. For myself, this is the interest rate that I
chose because while it was more expensive, I would never have to worry about the interest rate
changing. Because the fixed interest rate does not change, your payments will be a consistent
number.
One of my biggest recommendations when deciding interest rates is to evaluate your
financial situation and how much you are already taking out onto a loan. If you have taken out a
smaller sized loan and feel comfortable with the interest changing, then I would consider doing a
variable interest rate. If you prefer to have a stable and routine interest rate, then I would

consider doing a fixed interest rate. I would also consider doing a pro and cons list if you
struggle to decide which interest rate will be best for your loan and for your financial situation.

Communication Major Political Science Major Concentration in Human Communication Member of the UIndy Honors College Her Campus at Indy Vice President and Co-Social Media Director
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