Fixed vs. Variable Rates

FIXED RATES ARE GENERALLY A GOOD BET. A fixed interest rate loan has an interest rate that doesn’t change once the loan is originated, or first disbursed. This type of loan is “locked” at the same rate over the period of repayment. A fixed interest rate loan is viewed as a more conservative financial option, which can protect you against rising interest rates and additional interest costs accrued.

FIXED RATES
  • Generally have a higher rate than variable rate student loans
  • Are not affected by interest rate changes
  • Charge the same monthly rate over the life of the loan
  • Charge the same monthly payment over the life of the loan
VARIABLE RATES ARE RISKIER. A variable interest rate loan has an interest rate that increases and decreases periodically with an index set by global financial institutions. If the index rate goes up, your interest rate on your loan will increase as well.

Variable rates currently offer lower interest rate options, resulting in additional interest savings. But you should keep in mind that variable rate loans are often higher risk for borrowers than fixed interest rate loans. Variable rates generally have a lower starting rate to account for the additional risk.

If you plan to pay off your loan debt relatively quickly, a variable rate loan can be a cost-saving option.  However, it’s important to be aware that the longer it takes you to pay off the loan, the more opportunity there is for interest rates to rise – taking your loan’s rate with it.  You can mitigate your risk by looking for a lender that caps its variable rates at a certain percentage.

VARIABLE RATES
  • Generally have a lower initial rate than fixed rate student loans
  • Are affected by interest rate changes
  • May charge a different rate on a monthly, quarterly, or annual basis based on interest rate changes
  • May charge a different monthly payment due to interest rate changes
FREQUENTLY ASKED QUESTIONS

WHAT INDEX IS YOUR VARIABLE RATE BASED ON? WHAT HAS THE HISTORICAL STABILITY OF THAT INDEX?
LIBOR stands for London Interbank Offered Rate. It's the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London. It is a standard financial index used in U.S. capital markets and can be found in the Wall Street Journal. In general, its changes have been smaller than changes in the prime rate.

Historical changes in LIBOR from January 1995 through April 2015.
Historical changes in LIBOR from January 1995 through April 2015.

HOW OFTEN CAN MY RATE CHANGE? IS LIBOR ROUNDED UP OR IS IT THE NUMBER I ACTUALLY SEE REPORTED? WHERE CAN I SEE IT REPORTED?

With the Eagle Gold All-in-One loan the interest rate is set each month on your payment date for the following month.  The published 1-month LIBOR is rounded up to the next highest one eighth (1/8th) of one percentage point.  http://online.wsj.com/mdc/public/page/2_3020-libor.html

HOW HIGH CAN INTEREST RATES GO? IS THERE A CAP?

The Eagle Gold All-in-One is capped at 8.95% for the 5, 7, and 10 year terms and 9.95% for the 15 year term. However, this does not include the 5% additional rate increase if the borrower does not maintain auto-debit of payments, direct deposit and an ATM Rebate checking account. Thus, the rate could increase to a maximum of 13.95% or 14.95%, respectively (where allowed by state law).

ARE THERE ANY PENALTIES FOR PREPAYING MY LOAN EARLY?

With the Eagle Gold All-in-One there are no prepayment penalties. In fact, if all amounts outstanding are paid in full on or before the due date of the forty-eighth (48th) monthly payment, the borrower will be credited interest paid on the loan in an amount up to two percent (2%) of the initial loan balance.