The U.S. Bank is the second major provider of private student loans to introduce a new fixed rate product. Along with Wells Fargo, the U.S. Bank is offering applicants the choice between a fixed or variable rate, thus eliminating the possibility of uncertainty regarding future repayment levels over the course of the loan.
Although current variable rates are much lower than the fixed rates on offer, students applying for their first private undergraduate loan are facing a probable 19 years of loan obligations. Repayment terms on the U.S. Bank private student loans are up to 15 years, following 4 years of college.
The U.S. Bank announced the introduction of the fixed rate loan in June 2011, saying “Education changes lives, and U.S. Bank is committed to giving students every opportunity to succeed. Now with the choice to apply for the interest rate option that best fits their needs, we hope to ease the burden of the increasing cost of college.”
The fixed rate applicable to the loan is 7.99% and applies to all qualifying applicants. However potential applicants should be aware that the bank charges a reserve fee, more usually referred to as an origination fee, of between 2% – 9% of the loan amount, which is deducted from the loan prior to disbursement. This effectively raises the rate by a minimum of 2% and should be factored into costs when comparing loans.
The reserve fee is calculated based on the credit of the applicant and the co-signer. Most students will require a co-signer with an established credit record to stand as guarantor before a loan will be approved. Using a co-signer with excellent credit can help to have the lowest reserve fee applied to the loan. Additionally borrowers who sign up to repay their loans with AutoPay qualify for a rate reduction of 0.5%.
Students should compare the fixed rate loan with the variable rate loan and consider the latter is free of fees. Variable rates are based on the Prime rate and the lowest APR on U.S. Bank variable student loans is currently 3.39% rising to 10.22% based on credit. Experts generally recommend variable rates based on the Libor rather than Prime rate. Students opting for the variable rate will once again qualify for the lowest rates if they have a co-signer with excellent credit. Optional deferment is available with U.S. Bank private student loans.
If the student is considering a private student loan once all other sources of student finance have been considered, then comparison shopping between private lenders is vital. The certainty of a fixed rate loan provides peace of mind above all else, reducing the risks of higher than anticipated payments which variable rates could result in.