The following is a Guest Post from Grace Frenson

Student debt has now reached an all-time high in the USA. It’s not only one of the most common forms of debt for those leaving college, but also becoming one of the most persistent debts there is. While the value of obtaining a college degree is unquestionable, the financial strain it can take on is becoming greater.

This means that those looking to go to college have to be smarter when it comes to choosing their loans for college. One of the steps to selecting the right financing options for college is knowing what factors make some options better value than others. Luckily, there is one key factor that determines how expensive student loans can be.

Interest rates.

Interest placed yearly, known as Annual Percentage Rate, is the percentage of your loan that is added onto the value you borrowed. So, a 10% interest rate on a loan of $20,000 over 4 years would mean you pay back $28,000 in total.

There is also different types of interest: flat interest and reducing balance interest.

The first is easy to calculate. You just divide the $28,000 over the number of months you have to pay it to find your monthly amount due. But, the second is more complex. It could help save you a lot of money though.

Reducing balance interest means after you make each payment, the interest rate is re-calculated based on the remaining amount you owe. So, as you pay off your loan, your repayments get smaller.

This type of loan is more common in credit unions and state agencies than banks because it makes less money for them. But, it’s worth your while checking which type of interest rate you’re getting to save you money in the long run. You can also refinance your plans at a lower interest rate.

The type and rate of interest of student loans can vary greatly. They also determine how quickly your debt can mount up, or how easy or quickly it can be paid off. So, getting yourself a loan with low-interest rates can help make your student loans much more manageable.

5 Tips to Get The Best Student Loan Interest Rates

1. Check out public and private options

Many people get used to going to the bank when it comes to getting loans. They often neglect to check if there’s a cheaper public option.

Conversely, a lot of people often assume that private options are always more expensive. The increased competition from government loans can mean private options sometimes offer better deals.

So, the best solution is to research both avenues to find the best rates for you.

2. Do your research on scholarships and financial aid

This is a tip that is easily the most common given to aspiring students. Despite this though, far too many students enter college without researching scholarships or stipends available for their programs.

These not only include direct forms of payment for your loans but also reduced interest loans with partnering financial institutions. They may even offer zero percent loans for small amounts for things like school supplies, which reduced the amount you have to get from the bank.

So, do your homework on where you’re going, as well as where you’re getting the money to study from. They might be one and the same place.

3. Research payment plans with your institution

Along with potentially offering more competitive loans, many universities and colleges offer payment plans which allow your costs to be spread out over multiple payments. This can mean a reduced amount needed when you go for a loan, which means lower interest payments overall. Lower interest rates can also be negotiated much easier with smaller loans.

So, see if you can find any way to break up your payments into more manageable chunks before searching for loan options.

4. Consider credit unions  

Credit unions are often a far too underutilized resource for those looking for finances. Not only do they usually offer better interest rates on every type of loan, but also usually apply reducing balance interest.

So, these should be the first port-of-call for potential students looking for loans. Be sure to check if your city or county has a credit union nearby and start saving too. This will make your loan application, now or later, smoother.