Discover Stafford Loans

[Bleurberry]

I'm doubting my decision to go with Discover for my medical school loans a bit. The really seem to know nothing at all. When I called them, I was told that interest would be capitalized once you enter repayment and that's it.

If you want to know what the REAL DEAL is, call Great Lakes, or log on their website. They are the one's who actually handle the loans on behalf of Discover. Thankfully, the nice lady *I* spoke with was humble enough to suggest I call them directly for any probing questions I may have that I couldn't find on the website. I looked into the company (looking for consumer complaints) and their standing in the overall industry, and it looked satisfactory to me.

---

Members don't see this ad.

 

[phungy]

I recently heard that Discover's unsubsidized loans capitalize on interest while other lenders like Citi do not. Anyone know about this? We may owe more to Discover than with other lenders.

 

[jammocah]

I recently heard that Discover's unsubsidized loans capitalize on interest while other lenders like Citi do not. Anyone know about this? We may owe more to Discover than with other lenders.

Capitalization is a process whereby a lender adds unpaid interest to the principal balance of a loan. All lenders capitalize.. if they don't.. they're letting you borrow money for free! The question you want to ask is HOW does each lender capitalize.. not whether or not they do.

 

[phungy]

You're right, my wording was wrong. I meant "My friend said Discover starts capitalizing on unsubsidized loans once the funds are dispursed and not during the repayment period." I looked at my terms again and it says (for private loans) that capitalization starts when repayment starts. Still unsure about the unsubsidized part but I'm leaning towards no because I had unsubsidized loans for a year now and I don't see any capitalization as of yet.

 

[jammocah]

You're right, my wording was wrong. I meant "My friend said Discover starts capitalizing on unsubsidized loans once the funds are dispursed and not during the repayment period." I looked at my terms again and it says (for private loans) that capitalization starts when repayment starts. Still unsure about the unsubsidized part but I'm leaning towards no because I had unsubsidized loans for a year now and I don't see any capitalization as of yet.

I've had Discover for 1 year (sub and unsub). They don't capitalize until repayment. You have the option to pay the interest accumulated at any time if you so choose so that it does not capitalize (get added on to principal) at repayment. They will send you quarterly statements to let you know what that amount is.

 

[TMP-SMX]

Capitalization is at repayment (6 mo post graduation) for all student loans meaning that the interest is essentially in a separate pile waiting to be added to the total principal amount.

 

[Guile]

Capitalization is at repayment (6 mo post graduation) for all student loans meaning that the interest is essentially in a separate pile waiting to be added to the total principal amount.

Whoa, that's different than for other providers. Chase at least waits until the end of the grace period. Where did you see that?

 

[Brent8927]

Whoa, that's different than for other providers. Chase at least waits until the end of the grace period. Where did you see that?

This is the same as capitalization at repayment (6 months after graduation), as the grace period ends 6 months after capitalization. All lenders seem to have the same capitalization policy regarding federal loans (probably because the gov't writes the rules...) whereas private loans may start capitalizing interest right away.

 

[Guile]

I thought we had a three-year deferment period?

 

[Brent8927]

I thought we had a three-year deferment period?

That would be great if we did! Unfortunately I'm pretty sure we don't--at least not with most lenders. But, I've never looked into Chase since a lot of people don't seem to be too happy with them, so perhaps they have a different policy.

You might also be thinking of the residency or economic hardship deferral. I think I remember reading that in the past you could defer payments for three years of residency. Or perhaps that's the current rule... I believe the rules were changed rather recently (and not to our benefit, unfortunately).

 

[Brent8927]

I just spoke a financial aid officer regarding Discover. She told me Discover can raise the interest rate on their Grad PLUS loan (offered at 8.25%) up to 8.5% at any time, as only the 8.5% is guaranteed. I suppose if they do this, then they are still on par with everyone else, but I just wanted to put this information out there.

As others say, upfront benefits (no fees) is something that, as far as I know, cannot be taken away (since they're given right away), so that's where Discover still beats others.

Still, I personally feel too uneasy going with such a new program, and I've been told at my school there is no default fee for Access Group, so I will be going with them .

 

[TMP-SMX]

I just spoke a financial aid officer regarding Discover. She told me Discover can raise the interest rate on their Grad PLUS loan (offered at 8.25%) up to 8.5% at any time, as only the 8.5% is guaranteed. I suppose if they do this, then they are still on par with everyone else, but I just wanted to put this information out there.

As others say, upfront benefits (no fees) is something that, as far as I know, cannot be taken away (since they're given right away), so that's where Discover still beats others.

Still, I personally feel too uneasy going with such a new program, and I've been told at my school there is no default fee for Access Group, so I will be going with them .

A lot of lenders have no default fee. The problem is all of them have an origination fee of 1% plus except for Discover. If you are going to Loyola they have a 1% origination fee if your loan is disbursed after July 1st. (At least I think. I know undergrads are going from 1% to 0.5% after July 1st).

Also keep in mind that all lenders can go back on their auto payment rate reductions but they can't retroactively take away the disbursement money they give you each semester because that's what the up front origination/default fees do.

 

[Brent8927]

A lot of lenders have no default fee. The problem is all of them have an origination fee of 1% plus except for Discover. If you are going to Loyola they have a 1% origination fee if your loan is disbursed after July 1st. (At least I think. I know undergrads are going from 1% to 0.5% after July 1st).

Also keep in mind that all lenders can go back on their auto payment rate reductions but they can't retroactively take away the disbursement money they give you each semester because that's what the up front origination/default fees do.

Unfortunately the other lenders I was looking at (other than Discover) did have default fees--it depends partly on what lender you choose and on the guarantor of your school. It looks like Discover never has a default fee, Wells Fargo always does, and Access Group sometimes does.

You are correct--I believe the origination fee for Stafford loans at Loyola (and everywhere else) is 1.5%, but for dispersements after July 1st it is 1%, as you say. Discover is the only lender that pays this fee for you, at least as far as I know.

Both Discover and Access Group offer the interest rate reduction, which I am aware can be taken away, as can Discover's lower interest rate for PLUS loans.

I thought the 1% origination fee being covered, and having a slightly lower interest rate for at least a while, wasn't a good enough reason for me to go with Discover. Personally I feel more comfortable "playing it safe" with a company that's been in the student loan business for some time and has been proven, is well-regarded, and who had better customer service. Discover is definitely a reputable company and still had great customer service, but I still felt uneasy with them.

 

[Guile]

Unfortunately the other lenders I was looking at (other than Discover) did have default fees--it depends partly on what lender you choose and on the guarantor of your school. It looks like Discover never has a default fee, Wells Fargo always does, and Access Group sometimes does.

You are correct--I believe the origination fee for Stafford loans at Loyola (and everywhere else) is 1.5%, but for dispersements after July 1st it is 1%, as you say. Discover is the only lender that pays this fee for you, at least as far as I know.

Both Discover and Access Group offer the interest rate reduction, which I am aware can be taken away, as can Discover's lower interest rate for PLUS loans.

I thought the 1% origination fee being covered, and having a slightly lower interest rate for at least a while, wasn't a good enough reason for me to go with Discover. Personally I feel more comfortable "playing it safe" with a company that's been in the student loan business for some time and has been proven, is well-regarded, and who had better customer service. Discover is definitely a reputable company and still had great customer service, but I still felt uneasy with them.

I know lots of people using Discover and are happy. If you think that 0.25% doesn't make a difference, I'd reconsider. Over the life of the loan, that's a lot of money.

 

[Brent8927]

I know lots of people using Discover and are happy. If you think that 0.25% doesn't make a difference, I'd reconsider. Over the life of the loan, that's a lot of money.

That's true, but I don't like the fact that the rate can be hiked up to 8.5% anytime; some lenders offer students lower interest rates to get their business and then hike them up at the first opportunity.

I doubt Discover has that in mind--I think they're trying to start up shop, and a great way to do that is to offer a better deal than their competitors. They are a reputable company, so I wouldn't expect they would do anything shady.

I'm just uncomfortable signing a loan with a company that is just starting out in student loans. I completely believe there are a lot of happy Discover customers out there who love their service, but the real test of customer service is when you enter repayment--which no one with Discover has. I'm sure Discover will still do well in that area, I'm just a bit more conservative when it comes to my money and future debt and prefer a company that's tried and true.

 

[TMP-SMX]

I had THE for M1 and Discover for M2. They use the same guarantor for my loans so it makes no difference as I pay to the same place.

 

[Brent8927]

I had THE for M1 and Discover for M2. They use the same guarantor for my loans so it makes no difference as I pay to the same place.

Yeah, if they use the same guarantor then it really makes no difference, and you should go with the better deal. In the case of Loyola, they use TG as a guarantor, so that's who my guarantor through Access Group is. If I recall, Discover uses Great Lakes.

I have a loan that was through Bank of America, but was sold to National Collegiate Trust, or something to that effect. I've only received about two letters from them--everything else I've done has been though AES, their guarantor. Sometimes you basically never hear from your lender.

Wells Fargo on the other hand, where I have another loan, services all of their own loans, which I really liked . But they have higher fees than Access and Discover.

 

[TheElement]

Is choosing lenders with different guarantors a major issue? My school also uses TG and I was thinking about going with Discover. However, looking at the website, it says that Discover does not provide loan consolidation through TG. Will this be a major loss later on?

Additionally, my undergrad loans are serviced through Sallie Mae (I don't remember the lender..Chase?).

 

[TMP-SMX]

Not much difference. You just make two monthly payments rather than one. If it is autodebit then there really is no difference.

 

[Guile]

Not much difference. You just make two monthly payments rather than one. If it is autodebit then there really is no difference.

And there are two lenders to whom you have to apply for deferment and forbearance. Students have a hard time with this even when they have one lender. The most commonly missed payment is the first one, apparently.

 

[TMP-SMX]

And there are two lenders to whom you have to apply for deferment and forbearance. Students have a hard time with this even when they have one lender. The most commonly missed payment is the first one, apparently.

We don't have to worry about this. We won't have deferment after graduation. You start making payments after that sixth month and have autopayments set up in advance. In fact, depending on how the year goes I may make some interest payments during M4 in order to use the tax deduction for PGY1.

 

[Guile]

We don't have to worry about this. We won't have deferment after graduation. You start making payments after that sixth month and have autopayments set up in advance. In fact, depending on how the year goes I may make some interest payments during M4 in order to use the tax deduction for PGY1.

Wow, I missed a lot while in the study hole during second year. That's no good. I assume the payments have to be adjusted though. There's no way you can enter repayment with a resident's salary.

 

[eventualOMFS]

I just want to make sure I have this straight. I am trying to decide the best (read: cheapest) way to fund my loans at UMD-Baltimore College of Dental Surgery.

Stafford: Currently, the best option seems to be Discover, with 0% fees. This is better than the Direct program, which charges a fee of 0.5% with no additional benefits. Both offer a 6.8% fixed loan.

Grad Plus: Currently, the best option seems to be Direct Grad Plus loans, if they are available at your school. These feature a 7.9% interest rate with a net 2.5% origination fee (4%-1.5% rebate). Currently this cannot be beaten by any FFELP lenders, but it requires that your school participate in the Direct program.

Is this summary correct? Discovery for Stafford Loans and Federal Direct for Grad Plus Loans? I want to get the ball rolling, but I want to make sure I am wise in my decisions! Thanks!


UPDATE: Apparently some schools, including mine, will not allow students to participate in both the FFEL and the Direct Lending programs. It is one or the other; if this is the case at your school, be aware of it and choose wisely!!!

 

[rgerwin]

Just my 2 cents. I love my discover stafford loans. The savings in fees is great!

 

[TMP-SMX]

Lol yeah it was so weird seeing the statement from the Direct Program not giving me my full disbursement because of the fees. O well you get it most of it back when entering repayment.

 

[enjoydrywax]

Does anybody know whether Discover does "EFT" (electronic fund transfers)? My school has a list of preferred lenders (Discover isn't one of them) and some do things via mail/physical check and some transfer the funds electronically to my school's account. The school highly recommends we choose one with EFT since dealing with the paper stuff is pretty exasperating and I couldn't agree more.

 

[UserNameNeeded]

What's so difficult about paper? I think it's worth the several hundred dollars in fees you save.

Discover has EFT agreements on a per school basis. They didn't have it last year with my school, this year they do.

 

[enjoydrywax]

What's so difficult about paper? I think it's worth the several hundred dollars in fees you save.

Discover has EFT agreements on a per school basis. They didn't have it last year with my school, this year they do.

Whoa whoa whoa using an EFT system means I have to pay several hundred dollars in fees? Are you kidding?

 

[Guile]

Whoa whoa whoa using an EFT system means I have to pay several hundred dollars in fees? Are you kidding?

Going with another lender vs. Discover will cost you several hundred in fees.

 

[enjoydrywax]

Going with another lender vs. Discover will cost you several hundred in fees.

Ah.. I see. Well I guess I am going with Discover then. This loan **** is so confusing with interest rates, default fees (I don't even know what those are), etc etc. I only need the subsidized $8,500 because it's basically free money so hopefully this process won't be too bad. Thanks for your help Guile and UserNameNeeded.

 

[DrQuack247]

Just to confirm.

If I take out the 8500 subsidized loans every year with Discover for four years of medical school, I can simply pay the amount I took out 8500x4=$34,000) right after I graduate so that I will never pay any interest on the loans?

Am I missing something here?

 

[TMP-SMX]

Just to confirm.

If I take out the 8500 subsidized loans every year with Discover for four years of medical school, I can simply pay the amount I took out 8500x4=$34,000) right after I graduate so that I will never pay any interest on the loans?

Am I missing something here?

You are not missing anything. That's how it is. You must pay in full within 6 months of graduation before the first month of interest starts to accrue. After that, your interest will be $193 that first month, $194 the month after that, then $195 and so on (interest compounding assuming no payments are made when in fact this is not realistic). If you just pay the interest, your balance will stay at 34,000. Not really much to worry about.

 

[DrQuack247]

You are not missing anything. That's how it is. You must pay in full within 6 months of graduation before the first month of interest starts to accrue. After that, your interest will be $193 that first month, $194 the month after that, then $195 and so on (interest compounding assuming no payments are made when in fact this is not realistic). If you just pay the interest, your balance will stay at 34,000. Not really much to worry about.

thanks

 

[JamesBond15]

From the Great Lakes website, guarantor for Discover:

1. What is the interest rate? The interest rate on new Subsidized loans is fixed at 6.8%, changing to 6.0% for undergraduate loans first disbursed on or after July 1, 2008. The interest rate on a new Unsubsidized Stafford loan is fixed at 6.8%. The interest on your subsidized Federal Stafford Loan will be paid by the federal government on your behalf while you are enrolled on at least a half-time basis and during your grace period, making the loan interest-free for those periods. After that, payment of interest and principal becomes your obligation. The interest on your unsubsidized Federal Stafford Loan will not be paid by the federal government during your in-school and grace periods. The interest rate is the same as in the subsidized Federal Stafford Loan, but accrues from the time of disbursement. You can either make periodic payments or the interest can be capitalized, at the time of repayment, which means that it will be added to the principal amount of your loan.

https://www.mygreatlakes.org/borrower/content/borrower/loanprograms_faqs.html

The interest on the unsubsidized loan is capitalized at time of repayment (6 months after graduation I guess) not every month during school.

I think the representatives at Discover (and other lenders) get confused with some many different loans and school levels (undergrad, grad, med). They most deal with undergrads because they usually have to look stuff up when I ask about loans for med loans.

 

[Sangria]

I think I might be going with Discover as well. Was anyone else able to spot any other disadvantages?

 

[4DaBirdz]

I think I might be going with Discover as well. Was anyone else able to spot any other disadvantages?

Well, the only thing I still need to find out is if they offer additional loans for residency/relocation/board exams. I haven't seen anything on their website about loan forgiveness programs (economic hardship forbearance, income-based payments, etc.), and need to make sure the loan limit is higher for professional school.

I tried calling to ask about all this, but they didn't have my school in their computer system, so I need to find out the school ID and call them back (may want to have this handy when calling their office, btw). They were very helpful on the phone, and it wasn't difficult at all to reach a "real person". I'm still crossing my fingers for discover loans!

 

[fleur531]

I just spoke a financial aid officer regarding Discover. She told me Discover can raise the interest rate on their Grad PLUS loan (offered at 8.25%) up to 8.5% at any time, as only the 8.5% is guaranteed. I suppose if they do this, then they are still on par with everyone else, but I just wanted to put this information out there.

As others say, upfront benefits (no fees) is something that, as far as I know, cannot be taken away (since they're given right away), so that's where Discover still beats others.

Still, I personally feel too uneasy going with such a new program, and I've been told at my school there is no default fee for Access Group, so I will be going with them .

I have concluded the same thing...

All in all, Discover does seem to be the better deal from the financial perspective.. it is the only I have found that does not have any front-end fees!

But personally I feel more comfortable going with Access Group. I like the fact that it has more experience with student loans (~20yrs) and this sounds off topic but i also like how it is nonprofit. It makes me feel like the money they make off of me will be going to a sufficiently good cause.

This is the info I found - thought I'd just put it out there in case it might be of help to anyone:
TG is also my guarantor so there is no 1% Default Fee and the Origination Fee is 0.5%. The Back-End benefits are the standard we've been seeing with the 0.25% interest rate deduction for debit payments. They might sell your loan but will sell it with the same contractual terms attached (from what I understand).

best wishes to all in ur financial aid choices!!

 

[da8s0859q]

Seems like everyone's pushing Discover, huh?

I can't find any reason why any other lender is better than they are, given that the "core" terms are federally mandated with Staffords.

Not too excited about racking up 6.8% interest on $27,000 or so while in school, but hey, what can I do?

 

[angeladav]

Seems like everyone's pushing Discover, huh?

I can't find any reason why any other lender is better than they are, given that the "core" terms

are federally mandated with Staffords.

Not too excited about racking up 6.8% interest on $27,000 or so while in school, but hey, what can I do?

Current "HOT" trend.

 

[carmend]

For the Direct Grad Plus loans, do you know if interest is also capitalized upon repayment?

Also (sorry I'm new with this!) if I paid interest continually along the way for the (let's say Stafford) loans, then in the end I would technically only have to pay back the principal amount? Basically is that saving me from paying "interest upon the interest"? Generally, how much would this save in the long run?

What do you guys think about Direct Grad Plus loans vs. certified private loans? (pros and cons) With the private loans right now, interest rates are pretty low with good credit history. But my main concern is that those rates are variable.

Thanks for your help with any of these questions!

I just want to make sure I have this straight. I am trying to decide the best (read: cheapest) way to fund my loans at UMD-Baltimore College of Dental Surgery.

Stafford: Currently, the best option seems to be Discover, with 0% fees. This is better than the Direct program, which charges a fee of 0.5% with no additional benefits. Both offer a 6.8% fixed loan.

Grad Plus: Currently, the best option seems to be Direct Grad Plus loans, if they are available at your school. These feature a 7.9% interest rate with a net 2.5% origination fee (4%-1.5% rebate). Currently this cannot be beaten by any FFELP lenders, but it requires that your school participate in the Direct program.

Is this summary correct? Discovery for Stafford Loans and Federal Direct for Grad Plus Loans? I want to get the ball rolling, but I want to make sure I am wise in my decisions! Thanks!


UPDATE: Apparently some schools, including mine, will not allow students to participate in both the FFEL and the Direct Lending programs. It is one or the other; if this is the case at your school, be aware of it and choose wisely!!!

 

[TMP-SMX]

For the Direct Grad Plus loans, do you know if interest is also capitalized upon repayment?

Also (sorry I'm new with this!) if I paid interest continually along the way for the (let's say Stafford) loans, then in the end I would technically only have to pay back the principal amount? Basically is that saving me from paying "interest upon the interest"? Generally, how much would this save in the long run?

What do you guys think about Direct Grad Plus loans vs. certified private loans? (pros and cons) With the private loans right now, interest rates are pretty low with good credit history. But my main concern is that those rates are variable.

Thanks for your help with any of these questions!

Why would you do that? The interest isn't compounding during school anyway. If you have extra money don't take as much out in loans.

 

[hannah06]

For those of you that went with Discover...how long did it take for your application to be approved and for your school to submit your loan info?

I applied about two weeks ago and still haven't been approved.

 

[JamesBond15]

For those of you that went with Discover...how long did it take for your application to be approved and for your school to submit your loan info?

I applied about two weeks ago and still haven't been approved.

I told my school that I wanted to go with Discover. My school filled out the application for me (took like 2 days) and after that I went to Discover's website to sign the MPN. Very quick.

 

[chessknt]

They changed their origination fee from 0% to 0.5% starting 9/1, thanks a bunch...

Too bad its so late in the finaid process that I cant really go back and change to a lender that offers better back-end discounts.

 

[UserNameNeeded]

The change should only apply to new loans on or after 9/1/09. If you've already gotten your MPN signed before 9/1, you shouldn't be charged an origination fee for any of this academic year's disbursements.

But it does suck that for the next academic year, I'll have to find a new lender. I've had 5 Stafford loan lenders in the past 4 years. Chase sold my loan to the government. I hope all my other lenders just sell my loans to the government. It'll be much better just dealing with 1 lender.