Federal loans vs. Private

[DancerFutureDPT]

---

Members do not see this ad.

So everywhere I read about loans said to exhaust all the federal options first, and then supplement with private loans....even the private loan websites say that.

I understand that a few years ago when federal interest rates were around 1-2% that it made sense (private loans were 3-4%, so obviously the federal ones were cheaper).

Now though, the private loans are much less than the federal ones...I remember finding some for 1.5 or 2%, up to about 4%...that's well below the 7-8% of the federal loans.

Why is it bad to go with a private loan company? I know the rates of some are variable, but I don't think they are all that way.

It's hard to justify spending 6.8% or 7.9% on a loan from the gov't when I could get one from my bank for around 3%....or my parents could take out a mortgage on their house for only 4.5% (although they won't do that, but theoretically they could).

Anyone have any insights on this?

 

[callmecrazy]

Anyone have any insights on this?

The potential for variable interest is one reason, but there are others. Government student loans are going to give you until (typically) 6 months after graduation before you have to start making loan payments. After that there are also options for deferment or forbearance if you go back to school again or are having financial problems. There are also options for consolidation and varying payment plans. You may or may not get any of this in the private sector.

Also, any subsidized Stafford loans that you qualify for will NOT collect interest while you are in school. When people talk about maxing out the federal loans before going private, it is usually these Stafford loans that they are referring to. The Grad Plus loans don't have this benefit and also carry a higher rate than the Stafford.

 

[blumonsoon]

This may not be helpful, but it might be.

I just called a bank and did an initial application for a private loan. Based off my credit, I can get a pretty low interest rate. You can try calling and seeing what your rate would be.

As for me, I am going to take the federal subsidized loan with the max of 8500 a year and then use my private loan for the rest. The private loan is for medical fields and has a 6 month grace period as well and is a differed loan, and with the interest lower than 6, it is a much better deal.

 

[Kyra4dpt]

There are pros and cons to Federal and private. I, for one, will probably be doing Federal loans only for one reason, security, at the risk of paying more in the end. But here are a few other things to consider, in addition to forebearence, consolidation, etc.

Let's say you face some sort of hardship and have a period of time where you can't make your loan payments in full--i.e., unemployed, divorce, disabled, unexpected medical bill, etc. If you tell them right away when their is a problem and ask what are your options...in my personal experience, they will work with you to find a reasonable payment plan for your situation. Thus, I feel more secure taking out a Federal loan. but by maxing out on Federal, I think people mean maxing out on the subsidized: you don't accrue interest on this money while in school! My only question here is do they have to legally work with you? Hm...worth investigating... Has anyone had a negative experience with federal loans (besides the higher interest rate)?

The private lender has no need (nor desire) to work with your situation. You can't make the payment? Beware! Can they increase your interest rate significantly? Can they slap on huge fines? They have been know to do just that. You can't make that payment, expect it to make a very negative impact on you credit rating! I have friends who have destroyed credit rating because of this. That's why the government is pushing student loan reform! I'm not sure if anything has passed that prevents this from happening yet. If not, lendee beware. Anyone have a good experience with a private lender? Thus far, I have only her neutral to negative stories...

That said...yes, interest rates are much more reasonable than government loans. Enough to have gotten my attention too. When you are talking about our size loans for the DPT, a few % makes a huge difference in what we have to pay back! If you choose the lower interest rate option, just make sure you know what you are getting yourself into. Understand the fine print. Remember that bad things can happen to any of us at any time, make sure you have some sort of protection built into that loan agreement. If not, consider walking away and talking to other lenders If all looks good, congrats on your low interest loan! Just make sure you tell the rest of us about it, so we can go to them too! 😀

 

[Sjohn106]

If you do go the private loan route for school, go ahead and do it now...I'm not 100% sure of the start date, but I believe all student loans will be through the federal system beginning in July. I could be wrong. Loan reform went in under the radar through healthcare, and I still haven't figured about what it means exactly. They either cut out the middle man with federal loans to where they are all direct loans, or all student loans will be federal student loans. I would also choose my bank very carefully, and stay about to date about what is going on in D.C. with financial reform. Private industry is under attack to an extent right now b/c this administration thinks they can solve all the worlds problems by running everything through the federal government. I just had to make this same decision as well. I wanted to go with private loans to avoid the system, but ended up going with federal loans b/c the system is so unstable. If I were you I would just find someone honest to talk to at the bank that seems well informed, and make my decision from there.

 

[PTstudent11]

have you spoken with any banks/ the financial aid department at northwestern about it?

I had never really thought of this option, but if you can get much better interest rates, it seems like the way to go.

Just curious if you had done any more research or come to a conclusion? Taking out 80k @ around a 4% interest rate vs an 8.5% interest rate would be SUCH a relief.

 

[mackaroo]

I wanted to bring this thread back! Does anyone have any experience with private loans or is planning to take one out for PT school? Especially the Sallie Mae Smart loan? The grad plus interest rates seem so high and I don't know that I want to count on the 10 or 20 year forgiveness plans.