Alternative Student Loan Rates

Alternative student loan rates are generally variable, which means they can go up or down. Interest rates on alternative student loans usually change quarterly. Your interest rate is calculated based on the Prime Rate or LIBOR plus a margin, determined by you and your co-signer’s creditworthiness. Each alternative lender chooses whether they will use the Prime Rate, LIBOR, or another index to determine alternative student loan interest rates. College Loan Corporation’s alternative loan product, for example, uses the Prime Rate.

How can I improve alternative student loan rates?

You may improve your alternative student loan rates by obtaining the best possible co-signer. A co-signer can be anyone who qualifies and is willing to share the responsibility of the loan with you, such as a parent or family member. A credit-worthy co-signer may be able to improve your alternative student loan rates, reduce loan fees and increase the amount you can borrow. For more information about selecting the best co-signer, see our Finding a Co-signer section.

How does interest accrue on alternative student loans?

Interest begins accruing as soon as your loan funds are disbursed to the school and will continue to accrue until the loan is paid in full. Alternative student loan interest is “simple interest,” meaning that interest does not accrue on interest, only on the principal balance. Credit cards are an example of “compound interest,” where interest accrues on both your principal balance and the interest that you have already accrued.

How can I reduce the alternative student loan interest that I will pay?

There is no pre-payment penalty on alternative student loans, so the faster you pay off your loan, the less interest you will pay overall. Some students make small payments while they are in-school, and that can also reduce the overall interest that you will owe.