Borrowers are strongly encouraged to consider the factors on the reverse and compare programs before applying for a private educational loan. Rates are usually variable, tied to the prime rate or three-month Treasury bill rate. The frequency of interest capitalization while in school or in grace periods can significantly affect total interest costs. More frequent capitalization accelerates the growth of the principal balance, in effect requiring the borrower to pay interest on interest. The best deals accrue interest on a simple basis and capitalize interest on a lump-sum basis at the end of the deferral period.
Fees vary widely.
Typically charged as a percentage of the loan balance, they can range from as low as 0 percent to 8 percent or higher. Fees may be discounted from the loan amount or added to the amount borrowed. In addition, some lenders may opt to charge a fee when the loan is disbursed or collect a fee when the loan enters repayment. The stronger the credit record, the better the terms. These benefits may take effect after a period of one to four years.