The word “bar” refers to the legal profession, not a source of alcoholic beverages. Bar study loans are private education loans to help law school graduates pay for the bar exam, bar review courses and living expenses while they study for the bar.
Since bar study loans are private student loans, they have the same eligibility requirements as most other private student loans:
The interest rate may be fixed or variable. A fixed rate remains unchanged for the life of the loan. A variable rate changes periodically, typically on a monthly or quarterly basis.
The interest rate on a variable rate loan may be pegged to market rates by combining a variable-rate index, such as the one-month or three-month LIBOR index or Prime Lending Rate, with a fixed margin based on the borrower’s (and cosigner’s) credit.
For example, if a borrower qualifies for a variable interest rate of LIBOR + 6.0%, the interest rate will be 6.25% when the LIBOR index is 0.25% and 9.0% when the LIBOR index is 3.0%.
The London Interbank Offered Rate (LIBOR) is the interest rate banks charge each other for short-term loans. A lender’s cost of funds may be pegged to the LIBOR index (e.g., through securitizations of the lender’s loan portfolios), so the lender may set the interest rates it charges to the same index to yield a predictable spread between the interest income and expense.
The Prime Lending rate is a reference or base rate that banks use to set the price or interest rate on many of their commercial loans and consumer loan products. It is the interest rate that they charge to their best credit customers. The Prime Lending Rate is published in the Wall Street Journal.
Interest rate reductions of 0.25% or 0.50% may be available to borrowers who choose to have their loan payment automatically deducted from a bank account.
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