When taking out an education loan, the interest rate you pay is one of the most crucial elements to take into account. It determines how much money you must borrow, your monthly EMI payment amount and repayment timeline.
Every spring, Congress sets federal student loan interest rates. These are determined by the high yield of the last 10-year Treasury note auction in May.
EMIs
An EMI (Equated Monthly Installment) is the amount you pay each month towards your education loan until it has been fully repaid. This payment includes part of the principal loan amount plus interest repayments.
With a fixed interest rate loan, your EMIs remain fixed throughout the duration. On the other hand, with floating interest rate loans, your payments fluctuate according to changes in interest rates.
Another factor influencing your EMIs is the moratorium period. This typically lasts 6 months but may extend up to one year.
Students can opt to prepay part of their loan amount in order to reduce EMIs and thus lower the total interest liability. This is also an excellent way to build credit history and maintain a healthy credit score.
Interest Rates
Interest rates are an integral component of higher education costs. They determine how much you pay a lender to borrow their funds, and this amount determines how much you ultimately owe in total over time.
Federal and private student loans offer different interest rates. Some offer fixed rates, while others have variable rates that can fluctuate over time depending on debt market conditions.
In 2013, Congress passed the Student Loan Certainty Act, linking federal student loan interest rates to a 10-year Treasury yield plus an additional margin. This ensures that when the Fed raises interest rates on federal loans, they too increase accordingly.
This year, federal student loan rates will rise by about 1% due to the Treasury Department’s latest 10-year note auction which concluded on Wednesday afternoon.
Tenure
Tenure is a system of job protections college-level educators earn after meeting rigorous qualifications. It makes it difficult for professors to be fired for teaching or researching controversial subjects.
Additionally, professors are unlikely to be fired for things like fraud, discrimination or skipping classes. However, colleges could potentially lose their tenure system if financial changes cause them to no longer support full-time faculty.
It is essential to remember that no tenure system is perfect. Many factors can influence whether or not tenure will be granted, so you must carefully weigh all options.
Most colleges have specific policies and procedures for granting or denying tenure. These should be based on criteria that are fair, protect academic freedom, and assess an individual’s suitability for the job.
Subsidies
Subsidies on student loans can be a huge help to students, particularly those with weak financial backgrounds. They enable individuals to save on interest payments both during their education period and after they graduate.
Federal student loan interest subsidies can be obtained for those who use certain income-driven repayment plans, such as Pay As You Earn (PAYE) and Income-Based Repayment (IBR). Depending on which plan you select, these subsidies may cover some or all of your interest costs.
Unsubsidized loans do not offer this benefit, meaning you are responsible for all interest accrued while in school as well as during grace periods and deferments. This can be an annoying situation and cause you to miss out on other educational benefits associated with higher education.
Thankfully, the government is making it simpler for students to receive education loan interest subsidies. Here’s how:
