Federal vs Private Loans for US citizens ? ? ? ?

[yorkiepoo]

Hi Everyone....

I'm trying to figure everything out with loans... and I am a bit confused....

I looked into federal loans and they seems to be more expensive than private loans, so I don't understand why the financial aid office seems to be pushing the Grad Plus loans instead of Private loans.

Here is what I understand....

Grad Plus loans at 3% origination fee + 8.5% interest rate

while Private loans have 0-5% origination fees on average and 4-10% interest rates... so I don't understand... is it really better to do Grad Plus loans if you can get a private loan for 1% fee and 5.5% interest?

any thoughts?

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[crazy_sherm]

Grad Plus loans are a fixed 8.5% interest. Private loans are a variable rate so it might be 5.5% right now but it could change in the future. Right now, private loans look like the better deal, especially with the lower origination fees. You'll have to look at your crystal ball to see the future and decide which will be better in the long run.

 

[stdmufin27]

And good luck obtaining a decent interest rate on zero to little income going into your 2nd year. We're talking at least 9% for private then. Jump on the fixed interest rate and don't worry about how interest rate fluctuations will give you an ulcer during the next 4 years.

 

[small]

I don't think Grad Plus (or any federally subsidized loan) compounds interest while you are in school. You are accumulating interest, of course, but not interest on your interest. This makes a BIG difference. This might have been some fuzzy math, but I think it is cheaper for me to take the Graduate Plus loans rather than take something at 5% that was compounded annually. Pretty sure government loans are the way to go unless you can find a REALLY good private deal (or just need more money).

 

[stdmufin27]

I don't think Grad Plus (or any federally subsidized loan) compounds interest while you are in school. You are accumulating interest, of course, but not interest on your interest. This makes a BIG difference. This might have been some fuzzy math, but I think it is cheaper for me to take the Graduate Plus loans rather than take something at 5% that was compounded annually. Pretty sure government loans are the way to go unless you can find a REALLY good private deal (or just need more money).

Unfortunately, your interest IS capitalized quarterly w/ grad plus loans (they aren't subsidized) and then the interest on interest on interest on..... continues during deferment.

Check it out:
http://studentaid.ed.gov/students/attachments/funding/PlusLoansQA.pdf

 

[small]

Unfortunately, your interest IS capitalized quarterly w/ grad plus loans (they aren't subsidized) and then the interest on interest on interest on..... continues during deferment.

Check it out:
http://studentaid.ed.gov/students/attachments/funding/PlusLoansQA.pdf

Yeah, I think you're right, though the only reference in that document I found to capitalization referred to adding interest to the principle "at the end of the deferment or forbearance," which is the same as unsub. Stafford.

I found this
http://www.finaid.org/educators/gradplus.txt
though, which states

Capitalization of Interest: During any deferral of principal payments,
interest may either be paid monthly or quarterly, or it may be
capitalized no more frequently than quarterly, per
428B(d)(2). Capitalized interest is not counted as exceeding the
annual loan limit.

Sucko.

 

[stdmufin27]

Yeah, I think you're right, though the only reference in that document I found to capitalization referred to adding interest to the principle "at the end of the deferment or forbearance," which is the same as unsub. Stafford.

I found this
http://www.finaid.org/educators/gradplus.txt
though, which states

Capitalization of Interest: During any deferral of principal payments,
interest may either be paid monthly or quarterly, or it may be
capitalized no more frequently than quarterly, per
428B(d)(2). Capitalized interest is not counted as exceeding the
annual loan limit.

Sucko.

Exactly what I was trying to get at. No doubt about it, capitalization adding an additional 30-40k to my loans straight stinks to high heaven.

 

[schmick]

Do you need to be employed to qualify for the private loans? Is there also a limit on those? Can you get more than you actually need? And use it for things unrelated to school like vacations?

 

[stdmufin27]

Do you need to be employed to qualify for the private loans? Is there also a limit on those? Can you get more than you actually need? And use it for things unrelated to school like vacations?

No, but it helps w/ your interest rate and eventually you may need a employed cosigner. No limit except for what your credit can get you. Yes, the need for money above your cost of attendance (tuition + supposed living expenses) is why there is a need for private loans. Yes and No, you can use it on what you feel comfortable doing it on but there legal ramifications to not using the money for school (though I've never heard of anyone being caught).

 

[campusvitals]

Mostly due to the squeeze on the providers of this type of loan and the fact that so many have been decimated by defaults.

For most Med Students, or any students for that matter, a private loan might be cheaper at the moment, but it definitely will require more in terms of collateral or cosigners. My site in my signature has dozens of free articles related to Financial Aid and Student Loan Consolidation.

One thing I will say is that if you are needing to get multiple loans due to the amounts required, the federal loans will be much easier to consolidate in the future.

It's just my opinion, but the Federal Government is going to have to step in and save the Student Loan Market in the next year which will mean subsidies on the Federal Loan side.

Good Luck.

 

[B-Swizzle]

Hello all

2 questions:
How many years are you required to serve under NHSC? Is it determined based on the HPSA score, is there some equation? Lastly, are there private loans out there that allow loan forgiveness for the same high HPSA scored clinics?

Thanks for any advice in advanced, I've been up and down these forums looking for a way to pay for med school.

 

[Faux]

I keep being told that government loans are more secured.