Avoid Grad Plus loans in these circumstances

[Student Loan Planner]

Might be worth looking at alternatives to your Grad Plus loans that the dental schools will offer you to pay for tuition this year.

You're probably going to have to figure out financial aid in July and August if you're a rising D1, and I wanted to bring up something that could save you $5,000-$10,000 if you've got some generous parents that are willing to lend you their credit score as cosigners during dental school.

For those who don't know, Grad Plus is a federal loan program that covers the cost of dental school once you've exhausted all other federal loan sources as it covers up to the cost of attendance. Stafford Unsubsidized caps out at about $40,000 per year (*corrected).

Since dental school costs way more than that, Grad Plus fills the gap. The problem with that is that Grad Plus has a 4.27% origination fee for every $1 you take out. On top of that, you'll be charged 7% interest for the upcoming school year.

If you're going to a super high cost school, ie NYU, BU, Midwestern, etc. then you want all your loans to be federal because your only choice is going to be going for forgiveness under one of the income driven repayment options.

However, if you're going in state for dental school, ie Iowa, Maryland, UNC, Alabama, Texas A&M, etc. then the math is going to support you eventually paying them back through refinancing once you've got a full dentist income.

So if you can get a low or no origination fee private loan with a 5-6% fixed interest rate, you should do that. I just ran some numbers on someone who takes out $40,000 a year in private loans at 6% with no origination fee vs $40,000 in Grad Plus and the interest savings would be over $10,000 over 4 years.

Just wondering if anyone was considering doing something like that, if you had questions, concerns, criticisms, etc.

---

Members don't see this ad.

 

[TeethAreMyThing]

I really appreciate the things you post on this forum. Always very helpful and informative!

 

[738177]

Grad plus loans don't qualify for loan forgiveness?

 

[Student Loan Planner]

Grad plus loans don't qualify for loan forgiveness?

Grad Plus loans do qualify, however you'll pay them back in full if you're going to be making more than $200,000 long term annually and will be borrowing less than $400,000 in most cases.

One drawback of that private loan replacement of grad plus strategy is no REPAYE, PSLF, etc. However, if you're going to be paying them back one day because your debt to income ratio will be below 2 within 5 years of graduating, then this is a way to save money.

That's why I mentioned the high cost schools should stick to Grad Plus because there are very few scenarios where the loans will actually get repaid if you go to a NYU, BU, Midwestern, etc.

 

[Str82th]

Excellent post, thank you for looking out.


Sent from my iPhone using SDN mobile

 

[Buck-E-Badger]

Attending Iowa in the fall and this is exactly what I'm doing. Both my parents are CPAs and I had them go over tuition/loans with me and both concluded that private loans over grad plus were the best route. An additional tidbit, if you go through Wells Fargo and have an account with, use them for something, etc. you may be eligible for an even lower interest rate. I think I was able to knock .75% off my interest rate for banking through wells...

 

[DentalHopeful16679]

Why does Stafford Unsubsidized cap out at $20,500 per year? I'm seeing upwards of $42,000 for my school..

 

[Rand627]

Why does Stafford Unsubsidized cap out at $20,500 per year? I'm seeing upwards of $42,000 for my school..

Think he meant a semester, because I'm the same way.

 

[Rand627]

Might be worth looking at alternatives to your Grad Plus loans that the dental schools will offer you to pay for tuition this year.

You're probably going to have to figure out financial aid in July and August if you're a rising D1, and I wanted to bring up something that could save you $5,000-$10,000 if you've got some generous parents that are willing to lend you their credit score as cosigners during dental school.

For those who don't know, Grad Plus is a federal loan program that covers the cost of dental school once you've exhausted all other federal loan sources as it covers up to the cost of attendance. Stafford Unsubsidized caps out at $20,500 per year.

Since dental school costs way more than that, Grad Plus fills the gap. The problem with that is that Grad Plus has a 4.27% origination fee for every $1 you take out. On top of that, you'll be charged 7% interest for the upcoming school year.

If you're going to a super high cost school, ie NYU, BU, Midwestern, etc. then you want all your loans to be federal because your only choice is going to be going for forgiveness under one of the income driven repayment options.

However, if you're going in state for dental school, ie Iowa, Maryland, UNC, Alabama, Texas A&M, etc. then the math is going to support you eventually paying them back through refinancing once you've got a full dentist income.

So if you can get a low or no origination fee private loan with a 5-6% fixed interest rate, you should do that. I just ran some numbers on someone who takes out $40,000 a year in private loans at 6% with no origination fee vs $40,000 in Grad Plus and the interest savings would be over $10,000 over 4 years.

Just wondering if anyone was considering doing something like that, if you had questions, concerns, criticisms, etc.

Two questions!

One, people always talk about the protections of federal loans. What exactly are these protections?

And two, where should we look at private loans? I have a credit score of 750+ and have a decent credit history (no loans though, just credit cards that have always been paid in full).

 

[Student Loan Planner]

Attending Iowa in the fall and this is exactly what I'm doing. Both my parents are CPAs and I had them go over tuition/loans with me and both concluded that private loans over grad plus were the best route. An additional tidbit, if you go through Wells Fargo and have an account with, use them for something, etc. you may be eligible for an even lower interest rate. I think I was able to knock .75% off my interest rate for banking through wells...

What's your rate and term Luther2016? Any origination fees on the Wells loans? The cheapest I've ever seen is about 2.98% variable but not many people get that. Standard is 5.75% to 6.25% for 10 years with no origination fees

Think he meant a semester, because I'm the same way.

Yeah that's what I meant oops sorry!

 

[Student Loan Planner]

Two questions!

One, people always talk about the protections of federal loans. What exactly are these protections?

And two, where should we look at private loans? I have a credit score of 750+ and have a decent credit history (no loans though, just credit cards that have always been paid in full).

About 90% of people need a cosigner, but I'd look at Lendkey* (no origination fee), CommonBond* (2% origination fee), Wells Fargo, Citi, and Discover. Those are the 5 that I'm aware of. *Denotes that I have a relationship with those 2 companies

I'm less familiar with Wells, Discover, and Citi, but I know that they do pretty big volume. Obviously check all the places and go with the place that has the lowest APR, which is the number that reflects the charges like origination fees.

Banks originating private loans care more about FICO supposedly than cash flow like the refinancing companies of the world. So if you're at a 750 you might qualify straight up, otherwise you'll need a cosigner.

Again just want to say that if you're planning on borrowing over $400,000 it's probably not a good idea to do this, and if you're at all passionate about not for profit type jobs or are thinking about something like the Army National Guard, probably not good idea. Otherwise could be really solid way to save money.

2nd part of the question on protections, primarily income driven repayment that protects you against having to pay the full amount if you're under or unemployed. If that's not important to you then the protections are not as important as the interest savings.

 

[Rand627]

About 90% of people need a cosigner, but I'd look at Lendkey* (no origination fee), CommonBond* (2% origination fee), Wells Fargo, Citi, and Discover. Those are the 5 that I'm aware of. *Denotes that I have a relationship with those 2 companies

I'm less familiar with Wells, Discover, and Citi, but I know that they do pretty big volume. Obviously check all the places and go with the place that has the lowest APR, which is the number that reflects the charges like origination fees.

Banks originating private loans care more about FICO supposedly than cash flow like the refinancing companies of the world. So if you're at a 750 you might qualify straight up, otherwise you'll need a cosigner.

Again just want to say that if you're planning on borrowing over $400,000 it's probably not a good idea to do this, and if you're at all passionate about not for profit type jobs or are thinking about something like the Army National Guard, probably not good idea. Otherwise could be really solid way to save money.

Another question!

When putting in my information for these loans, are all of these applications going to have a hard credit pull? It'd be nice to see all the APR's but doing 5-6 applications could really impact my score.

 

[Student Loan Planner]

Another question!

When putting in my information for these loans, are all of these applications going to have a hard credit pull? It'd be nice to see all the APR's but doing 5-6 applications could really impact my score.

When you do that it's considered rate shopping and should only count as a single "hard pull." The credit bureaus know that shopping for the best rate on the same loan is a rational thing to do and shouldn't impact your credit as if you were shopping for a mortgage, credit card, car loan, student loan, etc all at the same time.

Are there any drawbacks for private loans i.a. protecions and ability to consolidate and refinance the loans after school?

You won't be able to consolidate (meaning keep them in the federal loan system). You will however be able to refinance assuming interest rates aren't above what they are currently at in the present. However, that would be a good thing as your private loan would be at a lower rate than what's prevailing out there.

 

[Student Loan Planner]

So if I were to refinance after school I will have 2 different payments right? And if I understand correctly, you are saying there will be no drawbacks, only benefits, to refinancing if I go private instead of gradplus

What happens is that they reference the year prior's tax return for the federal stuff, so your payment on the federal would be 0, and the private stuff would be a 10 year amortization. In the year following you'd have more like 2 payments, one for federal and one for private.

Again you could always refinance the whole thing if there are better rates out there.

The only main drawback is the loss of income based repayment options. For folks borrowing a lot (>$400,000) that's a significant drawback. If you're borrowing much less than that, not so much

 

[Rand627]

When you do that it's considered rate shopping and should only count as a single "hard pull." The credit bureaus know that shopping for the best rate on the same loan is a rational thing to do and shouldn't impact your credit as if you were shopping for a mortgage, credit card, car loan, student loan, etc all at the same time.



You won't be able to consolidate (meaning keep them in the federal loan system). You will however be able to refinance assuming interest rates aren't above what they are currently at in the present. However, that would be a good thing as your private loan would be at a lower rate than what's prevailing out there.

So for the credit shopping thing I don't have to do anything special, just apply to a lot of different loans and they automatically know what's up?

 

[Student Loan Planner]

So for the credit shopping thing I don't have to do anything special, just apply to a lot of different loans and they automatically know what's up?

That's right, that's the way it is for refinancing student loans as well. Let us know if you get approved without a cosigner, would be pretty cool to hear bc most folks need one.

 

[rebecca_chatul_tov]

Just wondering if anyone was considering doing something like that, if you had questions, concerns, criticisms, etc.

I am active duty military so I have a couple of options available for taking care of tuition that are good options overall so I am not worried about that. My main concern are my kids and grandma. My husband is finishing up his engineering degree and we will have about year of underlap where we will both be in school simultaneously. I need to make sure that I can support three kids and an elder for like a year and my stipend ($2,000 per month) is not going to cut it. Is getting a loan in addition to the HPSP/HPCS an option?

 

[Buck-E-Badger]

What's your rate and term Luther2016? Any origination fees on the Wells loans? The cheapest I've ever seen is about 2.98% variable but not many people get that. Standard is 5.75% to 6.25% for 10 years with no origination fees



Yeah that's what I meant oops sorry!

4.36% variable over 10 years; no origination fees.

 

[Student Loan Planner]

I am active duty military so I have a couple of options available for taking care of tuition that are good options overall so I am not worried about that. My main concern are my kids and grandma. My husband is finishing up his engineering degree and we will have about year of underlap where we will both be in school simultaneously. I need to make sure that I can support three kids and an elder for like a year and my stipend ($2,000 per month) is not going to cut it. Is getting a loan in addition to the HPSP/HPCS an option?

It might be easier in this situation to stick with the federal program because they're looser with getting funds for "other" expenses

4.36% variable over 10 years; no origination fees.

The folks at Lendkey told me they're updating their "prime rate" as of July 13 to 2.98% for 10 years without an origination fee. Obviously there's no guarantee of getting that but it'd be worth checking I think unless you've signed up already. That's for parents with an almost perfect credit score of course.

4.36 variable is a lot better than 7% fixed in my view. Its tied to 30 day LIBOR meaning short term interest rates. The Fed can raise rates for a long time before they'll hit 7%

 

[aggietxdent]

However, if you're going in state for dental school, ie Iowa, Maryland, UNC, Alabama, Texas A&M, etc. then the math is going to support you eventually paying them back through refinancing once you've got a full dentist income.

If I did my math correctly, I don't have to dip into any Grad Plus loans. I can pay for everything using the "Federal Direct Unsub Loan". Just to be clear, you're only talking about Grad Plus right? If I'm only using the direct unsub loans, would it be better to try and go private for those?

 

[Student Loan Planner]

If I did my math correctly, I don't have to dip into any Grad Plus loans. I can pay for everything using the "Federal Direct Unsub Loan". Just to be clear, you're only talking about Grad Plus right? If I'm only using the direct unsub loans, would it be better to try and go private for those?

Right the reason I only suggest replacing Grad Plus is because of the higher interest rate and high origination fee than Unsub Stafford.

Unsubsidized Stafford has a 1.067% origination fee and a 6% interest rate. That's closing in on the better fixed rate offers from private loans so you might as well take the Staffords and have some repayment flexibility.

That said, if you got an amazing variable rate offer each year from private loans with 0 origination fee, you're probably looking at a better total cost from going all private, but that's taking some significant interest rate risk. Just depends on if you're a gambler and if your parents have the means to help you out if 4% variable unexpectedly became 8 or 9% by the end of school (very unlikely but possible)

 

[Nelson16]

Thanks for your help Travis. I tried asking the student financial service at my school about this type of stuff and they looked at me like I had two heads.

So I'm going to an expensive private school and already took out the super unsubsidized Stafford. My parents generously offered me a low-interest loan to cover the remainder. Should I take it or stick to the grad plus so that I can have the repayment flexibility?

 

[Rand627]

Another question!

What happens with these private loans if we decide to specialize? Will they let us defer them for 2+ more years?

 

[Buck-E-Badger]

It might be easier in this situation to stick with the federal program because they're looser with getting funds for "other" expenses



The folks at Lendkey told me they're updating their "prime rate" as of July 13 to 2.98% for 10 years without an origination fee. Obviously there's no guarantee of getting that but it'd be worth checking I think unless you've signed up already. That's for parents with an almost perfect credit score of course.

4.36 variable is a lot better than 7% fixed in my view. Its tied to 30 day LIBOR meaning short term interest rates. The Fed can raise rates for a long time before they'll hit 7%

I have not locked it in yet so I'll give that a look, thanks for the advice!

 

[Likkriue]

Another question!

What happens with these private loans if we decide to specialize? Will they let us defer them for 2+ more years?

You can but the interest is going to eat you alive if you do a specialization that doesn't give you a stipend.

 

[Alpha Centauri]

I'd prefer GradPLUS and the benefits over saving 10 grand in the future.

 

[Chipotlegonewild]

I'd prefer GradPLUS and the benefits over saving 10 grand in the future.

You know why people make fun of millennials? Exactly this reason.

 

[allantois]

You know why people make fun of millennials? Exactly this reason.

Mhm, government loans provided by the courtesy of baby boomer politicians

 

[Student Loan Planner]

Another question!

What happens with these private loans if we decide to specialize? Will they let us defer them for 2+ more years?

Great question. You get 5 years of deferment at most of the places I believe, so you could run into a situation where you'd have to start making payments during a low or no stipend specialty. If you're really unsure then I might just use them for the last couple years of school.

Another option is doing a residency refinancing at that point. Laurel Road lets you pay $100 a month during training, so if I was facing a cash crunch I'd go to them to get a lower payment.