What factors affect my rate?

Understanding how different loan options affect your interest rate can help you save money and manage debt more effectively. Several factors can influence how much you'll pay, including the type of interest rate you choose, whether you opt to make payments while still in school, and the length of your loan term.

Factor 1—Fixed vs. Variable Interest Rates

Fixed Interest Rates provide predictability because they remain the same throughout the life of the loan. This stability makes budgeting easier since you’ll know exactly what your payment will be every month until your loan is fully paid off. However, fixed rates often start higher than variable rates precisely because they offer this predictability and protection against future rate increases.

Variable Interest Rates can be initially lower than fixed rates but they fluctuate over time based on changes to an underlying index rate. While the index rate may change, reflecting general market trends, the margin will be "locked" for the duration of your loan. 

What does that mean?

Variable interest rates are typically composed of two parts:

  1. The Index: This is a benchmark interest rate that reflects general market conditions and can fluctuate based on economic factors. 
  2. The Margin: This is a set percentage added to the index to determine the total interest rate charged on the loan. When the margin is "locked," it means this percentage does not change throughout the duration of the loan, providing a level of predictability.

Factor 2—Deferred Payments vs. Paying While in School

Choosing between deferred payments and paying while in school can also affect your interest rate and the total cost of your loan. Deferred payment options allow you to postpone making any payments on your student loans until after you graduate; however, interest still accrues during that period, which can significantly increase the total amount you owe.

Conversely, choosing to make payments while still in school can reduce the total interest you'll pay over the life of the loan. Even small, interest-only payments can make a big difference in reducing the total cost of your loan. 

Factor 3—Length of the Loan

The length of your loan is another crucial factor. Typically, longer loan terms will have higher interest rates than shorter terms. This is because a longer term increases the lender's risk of not being repaid. Shortening the term of your loan can increase your monthly payments but decrease the amount of interest you will pay overall.

Making Your Decision

When choosing between these options, consider your current financial situation and your expected financial position after graduation. A fixed interest rate might be better if you prefer consistency and predictability in your budget. If you're able to handle potential increases in your monthly payments, and current market trends suggest favorable conditions, a variable rate could save you money in the long run.

Paying while in school is a smart choice if you can afford it, as it reduces the total interest accrued. However, if you need to minimize expenses while studying, deferring payments might be necessary.

Lastly, consider the length of your loan in the context of your career expectations and how quickly you believe you can repay the loan. Choosing the right options can significantly impact your financial health during and after college. 

If you still need help deciding, please call, chat, or email with our trusted advisers! Talking to an expert at South Carolina Student Loan is always free. 

Can I ever change the rate of my loan? 

Yes! You have options to adjust your repayment strategy after graduation by refinancing your loans. Refinancing allows you to consolidate one or more student loans into a single new loan, usually at a lower interest rate. This can be particularly advantageous if you've built a solid credit history or if market rates have improved since you first borrowed. By refinancing, you might reduce your monthly payments or shorten the loan term, ultimately saving on the interest paid over the life of the loan.

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