Student Loans Explained: APR, Interest Rates, and Borrowing Tips (2025 Update). For most students, federal student loans are usually the most affordable and accessible option for financing their education. These loans are funded by the U.S. Department of Education and come with several advantages, including low fixed interest rates, flexible repayment options, and important borrower protections like income-driven repayment (IDR) plans, deferment, forbearance, and even loan forgiveness programs.

Another major benefit is that federal loans don’t require a credit check or a co-signer, which makes them ideal for undergraduate students who are just starting to build their credit history. To qualify, you simply need to complete the Free Application for Federal Student Aid (FAFSA).

However, federal loans do have borrowing limits, which means they might not cover the full cost of attendance—especially for students attending private universities, professional schools, or graduate programs. Once you’ve reached the federal loan limit or need additional funds for tuition, housing, or other expenses, private student loans can be a useful supplement.

Private loans are offered by banks, credit unions, and online lenders. If you have a strong credit score or a co-signer with excellent credit, you may qualify for a lower interest rate than what’s available with federal loans. In this case, a private loan can make financial sense, particularly if you plan to repay it quickly or take advantage of low variable interest rates during stable economic conditions.

That said, private loans don’t provide the same protections, forgiveness programs, or flexible repayment plans that federal loans do. Therefore, experts recommend using federal student loans first and only turning to private loans if you’ve exhausted all your federal funding options or have the credit profile to secure a highly competitive rate.

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What Is APR?

APR stands for Annual Percentage Rate. It is a measure of the cost of borrowing money, expressed as a percentage of the loan amount. The APR does more than just reflect the interest rate you pay—it also includes any additional fees or charges associated with the loan.

With private student loans, the APR is a particularly important figure to consider when comparing loan offers from different lenders. Because the APR accounts for both interest and lender fees, it gives you a more complete picture of how much borrowing will cost you.

That means when you are comparing loan offers, don’t just look at the interest rate—look at the APR. A loan might advertise a low interest rate, but if it carries high fees or costs, the APR could make it more expensive in the long run.

Also, keep in mind: the APR you receive on a private student loan will depend on your credit history and other factors. Lenders use criteria such as credit scores and income to evaluate borrowers and determine the interest rate and fees they charge.

Fixed vs. Variable APR

What is a Fixed APR?

A fixed APR means the interest rate remains the same throughout the life of the loan. This means your monthly payments are predictable and stable—it’s easier to budget. While fixed APRs often start higher than variable ones, they offer the benefit of consistency and fewer surprises.

What is a Variable APR?

A variable APR means the interest rate can change over time, based on market conditions or an index that the lender ties the rate to. If interest rates rise in the broader economy, your rate and monthly payment could rise; if rates fall, your payments could drop. Variable APRs tend to start lower than fixed APRs, but they carry more risk because of the uncertainty.

Which one should you choose?

If you prefer stability and want to know exactly what you’ll owe each month, a fixed APR is often the better choice.
If you believe interest rates will remain low (or you plan to pay off the loan quickly), a variable APR might offer savings—but you must accept the risk of rate increases.
For private student loans specifically, many lenders offer both fixed and variable APR options—so choose based on your repayment timeline, tolerance for risk, and how long you expect to hold the loan.

Federal vs. Private Student Loans

Federal Student Loans

Loans provided by the government (via the U.S. Department of Education) are considered federal student loans. These typically come with standardized interest rates for all borrowers (not based on credit), offer strong borrower protections (like income-driven repayment, deferment, forbearance), and don’t always require a credit check. Federal Student Aid+1

Private Student Loans

Private student loans are offered by banks, credit unions or other financial institutions. They are typically used in these situations:

When federal student loans do not cover the full cost of tuition and other expenses.
When you’ve reached your federal loan borrowing limits and still need funding.
When you have strong credit (or a good co-signer) and can qualify for a lower rate than available on federal loans.
When you need funds quickly and cannot wait for federal loan processing.

Private loans rely on creditworthiness (your credit history, income, co-signer) and generally offer less flexibility in terms of protections and repayment options compared to federal loans.

Should You Use a Co-signer on Your Loan?

Using a co-signer can improve your chances of approval for a private student loan and may help you secure a lower interest rate. According to data, borrowers with co-signers are more likely to be approved. However, the co-signer is legally responsible for the loan if you don’t repay. It is essential you and your co-signer fully understand the responsibilities, risks, and expectations before signing.

If you don’t have a co-signer, another strategy is to improve your credit score before applying—for example, by paying bills on time, keeping credit-card balances low, and checking your credit report for errors—so that you present a stronger profile to lenders.

Tips for Comparing Low-Interest Student Loans

When you’re looking to borrow with the lowest cost in mind, follow these best practices:

Determine how much you need to borrow. Borrow only as much as you’ll likely need—not the maximum available. Some lenders may fund up to 100% of school costs, but that doesn’t always mean you should borrow that much.
Evaluate total loan costs. The APR is the primary factor because it reflects both interest rate and fees. Some private student loans may not have application or origination fees, but others may. Compare across lenders to find the lowest effective cost.
Choose the repayment term that works best for you. Loan terms for student loans can range from around 5 years to 20 or more. Short terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total cost.
Research additional borrower benefits. Some lenders provide perks—like interest-rate discounts for automatic payments, or options to pause or reduce payments if you face hardship.
Understand co-signer release policies. If you use a co-signer, check whether the lender allows you to release the co-signer after a certain number of on-time payments (which can help your co-signer exit the obligation).

What Is a “Low” Interest Rate for Student Loans?

What counts as a low interest rate depends on your creditworthiness, the loan term, whether the rate is fixed or variable, and the overall market environment. Borrowers with excellent credit tend to get the lowest rates.

For example: data for private student loans show average fixed-rate 10-year loans around 7.64% for borrowers with credit scores of 720 or higher. Variable‐rate 5-year loans averaged about 8.80% in the same context. These serve as benchmarks, not guarantees.

By contrast, federal loans have standardized interest rates (not credit-based) and thus can be a safer option if you have weak or no credit.

Will Applying for Student Loans Affect Your Credit Score?

Yes — applying for a student loan will typically result in a hard inquiry on your credit report, which can lower your credit score slightly. If you apply for many loans in a short period, the effect may be more pronounced.
However, once you are approved and make on-time payments, your credit should improve over time. It is wise to limit applications and shop around carefully rather than submit many loan applications indiscriminately.

Pros & Cons of Low-Interest Student Loans

Pros

You can cover tuition, fees and other educational expenses when other aid falls short.
Private lenders may offer borrowing up to the full cost of attendance when federal limits are reached.
With good credit, you may secure low interest rates (perhaps around 7%-8% or less) and choose fixed or variable options.
International students (who may not qualify for federal loans) might be able to use private student loans.

Cons

Private loans often require a co-signer with good credit.
Fewer borrower protections than federal loans (for example, fewer flexible repayment plans, no federal forgiveness options).
If you choose a variable APR, your payments could rise over time.
Private loans are not eligible for most federal loan forgiveness programs (such as Public Service Loan Forgiveness).

What If You Have No Credit or Bad Credit?

With no credit: Federal student loans are a good starting point—they don’t require credit checks (in many cases), and you can still qualify if you complete the application (e.g., the Free Application for Federal Student Aid) and meet other eligibility criteria.
With bad credit: Private lenders will likely require a co-signer, and your interest rate will probably be higher. Some lenders specialize in helping borrowers with weak credit—but remember the trade-offs (higher cost, less flexibility).

Student Loans Explained: APR, Interest Rates, and Borrowing Tips (2025 Update)