To gauge public awareness of how rising interest rates might affect the cost of borrowing for college, Credible recently surveyed 1,000 students and parents about their basic knowledge of the cost of financing a degree — including how interest rates on student loans are set, how often they’re adjusted, and whether they can change once taken out.
If you’d like to test your own knowledge, it could put you on a path to making smarter decisions about borrowing for college.
Scroll down for answers, below:
1. E) Congress sets interest rates on federal student loans, and has mandated that rates for new borrowers be adjusted once a year based on yields of 10-year Treasury notes auctioned in May.
2. False. A student who takes out federal student loans as a freshman can expect to pay different rates on loans they take out each academic year. Rates for new borrowers are adjusted annually with 10-year Treasury yields, and can go up or down.
3. A) Once issued, interest rates on federal student loans are fixed for the life of the loan.
4. C) Federal PLUS loans for parents and grad students carry the highest interest rates of all federal student loans.
5. C) Private lenders typically offer borrowers a choice of fixed- or variable-rate loans. Variable-rate private loans are indexed to the prime rate or the London Interbank Offered Rate (LIBOR).
6. False. Qualifying borrowers can refinance private or federal student loans with private lenders, who offer a range of rates and repayment terms.