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Think twice before taking out a private student loan

Factors such as customer service also need to be considered, Kantrowitz said. Is there a helpline if you need to reach someone on weekends? Can you update your address or contact information online?

Private lenders include Sallie Mae, which provided loans to more than 397,000 families in 2021 (“more than any other private lender,” according to its regulatory filings), and Citizens Bank, as well as online lenders like College Ave and SoFi.

At least a dozen states also offer student loans under special programs, usually to in-state residents attending an in-state college. Borrowers shouldn’t assume that rates and terms from state agencies are better than those from private, for-profit lenders, Ms. Streeter said. Be sure to check the details.

Here are some questions and answers about student loans:

Kantrowitz recommends that your total student debt be less than your projected first-year salary. If your debt is less than your annual income, you should be able to pay off your student loans in 10 years or less, he said. If you plan to earn $55,000 — the average starting salary for a four-year college graduate in 2021 — your total loans should be less than that amount. A similar rule applies to parents, he said. They should not borrow more, for all their children combined, than their annual income.

Federal student loan interest rates are set annually and apply to all new loans made in a given academic year. The rate is fixed for the term of the loan. Undergraduate direct loan rates are currently 3.73%. But they are expected to increase to 4.99% for loans made July 1 through June 2023. (Federal loan rates are set each spring and are tied to the 10-year Treasury note, using a formula set by law The Department of Education hasn’t officially announced the new rates, but Mr. Kantrowitz and others are projecting them based on Wednesday’s 10-year Treasury bond auction. )

While that sounds like a big jump, the effect on a borrower’s monthly payment is only about $3 more for a student borrowing the maximum of $5,500 in the first year and paying off the debt over a standard term of 10 years, according to Bankrate.com’s loan estimator. .

Private loan rates vary by lender. Many currently advertise fixed rates ranging from 3.2% to over 14%, and variable rate loans from around 1%. But fixed- and variable-rate private lending rates are expected to rise as the Federal Reserve continues to raise its benchmark interest rate, said Greg McBride, chief financial analyst at Bankrate. “Private student loans are also on the rise.”