## What is the effective interest rate on federal loans?

(Study Tips, Dealing With Stress, Maintaining a Social Life, Financial Aid, Internships, Bar Exam, Careers in Law . . . )
Veyron

Posts: 3595
Joined: Fri Jan 08, 2010 3:50 am

### What is the effective interest rate on federal loans?

Assuming maximum subsidized loans. 7% or something?

rundoxierun

Posts: 1853
Joined: Wed Dec 03, 2008 1:46 am

### Re: What is the effective interest rate on federal loans?

([8500/20500)*0.00]+[(12000/20500)*6.8]=3.98% (this is while in school)

Those numbers for subsidized and subsidized might not be exact and you only collect interest on unsubsidized loans in school so while in school replace the subsidized portions interest rate with zero to get the effective rate. But follow this template to get effective interest rates. To add in grad plus loans just multiple the proportion of the loan made up of gradplus by the 7.9 interest rate (i.e. (total gradplus/total loans)*7.9

ETA: I think you mean average interest rate btw(which is what this would be).. an effective rate usually accounts for some other things.
Last edited by rundoxierun on Sat Apr 02, 2011 3:13 pm, edited 1 time in total.

vanwinkle

Posts: 8954
Joined: Sun Dec 21, 2008 3:02 am

### Re: What is the effective interest rate on federal loans?

Veyron wrote:Assuming maximum subsidized loans. 7% or something?

EDIT: I did post-graduation, see above poster for pre-graduation Stafford loans while your loans are being subsidized.

Well, all GradPLUS loans are now direct loans through the schools, which should be at 7.9%. At full loan amounts you'll have more GradPLUS than Stafford loans, and Stafford is at 6.8%. Your effective rate should end up somewhere above 7%, probably in the 7.5% or greater range.

You can estimate it yourself:

S = (total Stafford loans, likely the maximum of 20,500)

Tuition + COL = COA (total loans for cost of attendance)

COA - S = G (total GradPLUS loan amount)

(S * .068) + (G * .079) = I (total interest owed annually, in dollars)

COA / I = E (Effective interest rate)

beachbum

Posts: 2765
Joined: Tue Jun 29, 2010 9:35 pm

### Re: What is the effective interest rate on federal loans?

And for those of us who are awesome/poor enough to receive Perkins loans, the interest rate is 5%. And Perkins loans are subsidized.

swc65

Posts: 1003
Joined: Wed Jul 22, 2009 11:27 am

### Re: What is the effective interest rate on federal loans?

Don't forget there is 4% loan origination fee the moment you take out a GradPlus loan.

Veyron

Posts: 3595
Joined: Fri Jan 08, 2010 3:50 am

### Re: What is the effective interest rate on federal loans?

Interesting. Are you still permitted to consolidate loans?

vanwinkle

Posts: 8954
Joined: Sun Dec 21, 2008 3:02 am

### Re: What is the effective interest rate on federal loans?

Veyron wrote:Interesting. Are you still permitted to consolidate loans?

Yes, and it's actually required to take advantage of programs like IBR, I believe.

Veyron

Posts: 3595
Joined: Fri Jan 08, 2010 3:50 am

### Re: What is the effective interest rate on federal loans?

vanwinkle wrote:
Veyron wrote:Interesting. Are you still permitted to consolidate loans?

Yes, and it's actually required to take advantage of programs like IBR, I believe.

Doesn't that defeat the purpose of federalizing the system or can you not consolidate loans privately.

Baylan

Posts: 356
Joined: Tue Jun 09, 2009 4:26 pm

### Re: What is the effective interest rate on federal loans?

Veyron wrote:
vanwinkle wrote:
Veyron wrote:Interesting. Are you still permitted to consolidate loans?

Yes, and it's actually required to take advantage of programs like IBR, I believe.

Doesn't that defeat the purpose of federalizing the system or can you not consolidate loans privately.

My understanding is that you are free to consolidate privately if you want, but that there is no incentive to do so. Unless you can get a badass interest rate, but that is unlikely to happen. Federal consolidation programs offer IBR, easier forebearance/deferment terms. Why would anyone want to consolidate privately, given those incentives?

Veyron

Posts: 3595
Joined: Fri Jan 08, 2010 3:50 am

### Re: What is the effective interest rate on federal loans?

Baylan wrote:
Veyron wrote:
vanwinkle wrote:
Veyron wrote:Interesting. Are you still permitted to consolidate loans?

Yes, and it's actually required to take advantage of programs like IBR, I believe.

Doesn't that defeat the purpose of federalizing the system or can you not consolidate loans privately.

My understanding is that you are free to consolidate privately if you want, but that there is no incentive to do so. Unless you can get a badass interest rate, but that is unlikely to happen. Federal consolidation programs offer IBR, easier forebearance/deferment terms. Why would anyone want to consolidate privately, given those incentives?

Interest rate. It used to be like 3% or something but I guess not anymore.

vanwinkle

Posts: 8954
Joined: Sun Dec 21, 2008 3:02 am

### Re: What is the effective interest rate on federal loans?

Veyron wrote:Doesn't that defeat the purpose of federalizing the system or can you not consolidate loans privately.

No, I don't think you can do private consolidation. There's a thing called "Federal Direct Consolidation Loans" that lets you consolidate all your federal loans into a single federal loan. Reading the website, it appears that the interest rate charged on the FDCL is based on an average interest rate calculated in a manner similar to what I mentioned above. Essentially they figure out what your average interest rate is, based on how much interest you owe on how much of your debt, and then round that to the nearest 1/8 percent, and fix it as your loan interest rate.

Website here: https://loanconsolidation.ed.gov/AppEnt ... pindex.jsp

Click on "Current Interest Rates" and then "Loan Calculator" to play with it.

vanwinkle

Posts: 8954
Joined: Sun Dec 21, 2008 3:02 am

### Re: What is the effective interest rate on federal loans?

Baylan wrote:My understanding is that you are free to consolidate privately if you want, but that there is no incentive to do so. Unless you can get a badass interest rate, but that is unlikely to happen. Federal consolidation programs offer IBR, easier forebearance/deferment terms. Why would anyone want to consolidate privately, given those incentives?

Actually, I keep meaning to look into the interest rates for private loans. If they're lower, then I might actually do that, since Harvard's LIPP covers private student loans as well.