Fixed-Rate Student Loans, With a Catch

An increasing number of lenders are offering fixed-rate loans to students and parents. Instead of carrying variable rates, these private student loans have interest rates that remain fixed for the term of the loan, typically 10 to 15 years. Fixed-rate private student loans usually begin at roughly 6.25 percent and can increase to 14.25 percent based on such things as credit scores, employment status, and assets of the borrower and co-signer. However, the fixed interest rates may be somewhat higher than what a variable rate loan would be. The rates on conventional, variable-rate student loans can be as low as 2.89 percent for parents or students with excellent credit and plans to pay off their loans quickly. At Wells Fargo, variable rate loans start at 3.50 percent and go as high as 9.99 percent, while the bank's fixed-rate loans range from 7.75 percent to 14.25 percent. At least 12 lenders currently offer fixed-rate loans, nearly twofold the number of a year ago, according to FinAid.org. Lenders that offer the fixed interest rates say they help families know how much they must pay each month for the life of the loan, making it easier to budget. They also note that loans are one of the few remaining ways for families to pay for college.

SmartMoney (08/19/11) Andriotis, AnnaMaria