The Finance Blogger

Many people are complaining that student loan interest rates are too high. How can these poor students who have just graduated pay so much interest when they are just starting out and are looking for a job? While it is true they may have a difficult time to repay these loans and the interest rate appears high, but let’s step back a moment and look at this situation from another perspective.

Student Loan Interest Rates – Welcome to the Real World

For many students, it is the first time they will enter into the real world and begin to support themselves. They may have relied on dad and mom, student loans, even a part-time job, but now they are entering the real world where they are expected to pay for their expenses and everything that they do. For some, it may come as a rude shock, while for others it is just a matter of course and they will need just adjust to the norms of society.

The reality is that if you have a non secured personal loan, with a bad credit rating or a nil credit rating the reality is that you will pay a rate that is comparable to anyone in that category. Students are all of these things. They may have a limited credit rating, these are now in reality personal loans and there is no security. This is what you have to pay when you borrow money under these conditions.

The Rate is Actually Competitive Considering

When you compare rates for mortgages for someone with the best credit rating, sure these student loans at 6% seem very expensive. But these kids do not have a credit rating that really means anything. They do not have a home to offer as collateral. Frankly they are a bad credit risk until proven otherwise. When you consider these factors a 6% interest rate on a student loan is actually not that bad. Anyone else borrowing money under these circumstances might have to borrow at rates even more than this.

Sure it will take a little longer to repay and it will cost a bit more than a 5% loan for example, but the faster you get on with repaying your loan, the quicker you can establish your credit rating and apply for loans for cars and mortgages for homes. If you establish a good credit rating, you will also be able to get the best interest rates available for these loans and mortgages.

Did They Need to Borrow this Much

We sometimes wonder if they really needed to borrow as much as they did. Did they go to too many parties for example? Did they have a part-time job? Were they living at home? Did they scrimp and save or did they have a good time at college?

When you are just starting out, many students may not realize the consequences of what can happen when they do not follow a budget. They do not realize that someday they are going to actually have to repay this loan and they are going to ruin their credit rating if they do not repay their loans.

Every time you can reduce your loan by a thousand dollars, you can trim a lot off your budget and your monthly payments when the loan repayment plan begins.

Get to Work and Pay Off Your Loans

Paying off the student loans is a chore, but then again the quicker you repay the loan, the less interest in total you will pay. As soon as the loan is repaid, your cash flow will improve and you will be able to focus on other things in your life. Repaying the loan quickly and on time, improves your credit rating and makes you eligible for other types of loans at some of the best interest rates.

You may think that rates are too high; however you have to repay these loans so why just not get on with it. If the government does lower the rate, then it is a bonus for you. But whatever you do, do not delay paying the loans thinking that the interest rate is coming down. You will always pay more actual interest when you slow pay your student loans.

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