Yesterday got a financial aid offer for direct unsubsidized loan at 6.08%. Is this normal. Can we loan elsewhere.
Financial aid and Interest rates
- Thread starter rx001
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deleted994889
From my understanding:
All students will be offered both Federal Direct Unsubsidized loans and Grad PLUS loans. Current interest rates are 6.079% and 7.079%, respectively. Both Direct Unsub and Grad PLUS are unlocked by filling out FAFSA. Grad PLUS requires creditworthiness and/or a co-signer. You don't have to use federal loans if you don't want. If you or your co-signer have strong credit, private loans may be cheaper, but you lose out on federal benefits.
*All interest rates and origination fees for the 2020-2021 term and beyond could change this May due to possible changes in the 10Y Treasury Note. Any loans taken out on/before July 1, 2020 will be at current rates. Rates/fees may change each term.
Things to note:
The annual maximum for Direct Unsub is $40,500 ($20,250 per semester) for 9-month programs ($47,167/year for 12-month programs). Any money borrowed beyond this will be incurred as Grad PLUS loans. Loan disbursements are usually per term (check with your school).
There is an aggregate (lifetime) limit for all Federal Direct loans of $224,000. This includes includes undergrad loans (both subsidized aka Stafford and unsubsidized). If you hit this limit, all amounts after will be loaned as Grad PLUS.
There is no aggregate limit on Grad PLUS, but you can only pull Federal loans (both Direct Unsub + Grad PLUS) up to the cost of attendance (COA) set by each school. After this, you'll need to look into private loans. The COA tends to be very generous (a purposeful overestimate) so you should not need to pull out more than this unless you have extenuating circumstances.
*Don't forget there are origination fees! Say you need $20,000 in Direct Unsub loans to pay for this semester's tuition. With the current origination fee of 1.059%, you'll receive $20,000 to pay off tuition, but your total loan amount will be $20,318 (20,000+1.059%). And yes, you will be paying compounding interest on the $20,318 from the point of disbursement.
If you end up pulling the full $162,000 in Direct Unsub, your total loans at the beginning of residency will be about $190,155.28. This is a slight underestimate and assuming you don't take any Grad PLUS. The Grad PLUS origination fee is currently 4.236%!
Edit: Someone double-check my math. I used a simplified single disbursement per year, hence the underestimate. 2 disbursements would yield a slightly higher number since the first disbursement would be gaining interest immediately.
Edit 2: I re-did the math and made corrections.
Edit 3: I checked with my finaid office and the Direct Unsub annual maximum includes origination fees. So if you take the 9-month max of $40,500, you'll receive $38,243.63 and owe $40,500. The annual limit depends on the length of the term. Confirm with your school for their exact numbers.
10 month term: $42,722
11 month term: $44,944
12 month term: $47,167
All students will be offered both Federal Direct Unsubsidized loans and Grad PLUS loans. Current interest rates are 6.079% and 7.079%, respectively. Both Direct Unsub and Grad PLUS are unlocked by filling out FAFSA. Grad PLUS requires creditworthiness and/or a co-signer. You don't have to use federal loans if you don't want. If you or your co-signer have strong credit, private loans may be cheaper, but you lose out on federal benefits.
*All interest rates and origination fees for the 2020-2021 term and beyond could change this May due to possible changes in the 10Y Treasury Note. Any loans taken out on/before July 1, 2020 will be at current rates. Rates/fees may change each term.
Things to note:
The annual maximum for Direct Unsub is $40,500 ($20,250 per semester) for 9-month programs ($47,167/year for 12-month programs). Any money borrowed beyond this will be incurred as Grad PLUS loans. Loan disbursements are usually per term (check with your school).
There is an aggregate (lifetime) limit for all Federal Direct loans of $224,000. This includes includes undergrad loans (both subsidized aka Stafford and unsubsidized). If you hit this limit, all amounts after will be loaned as Grad PLUS.
There is no aggregate limit on Grad PLUS, but you can only pull Federal loans (both Direct Unsub + Grad PLUS) up to the cost of attendance (COA) set by each school. After this, you'll need to look into private loans. The COA tends to be very generous (a purposeful overestimate) so you should not need to pull out more than this unless you have extenuating circumstances.
*Don't forget there are origination fees! Say you need $20,000 in Direct Unsub loans to pay for this semester's tuition. With the current origination fee of 1.059%, you'll receive $20,000 to pay off tuition, but your total loan amount will be $20,318 (20,000+1.059%). And yes, you will be paying compounding interest on the $20,318 from the point of disbursement.
If you end up pulling the full $162,000 in Direct Unsub, your total loans at the beginning of residency will be about $190,155.28. This is a slight underestimate and assuming you don't take any Grad PLUS. The Grad PLUS origination fee is currently 4.236%!
Edit: Someone double-check my math. I used a simplified single disbursement per year, hence the underestimate. 2 disbursements would yield a slightly higher number since the first disbursement would be gaining interest immediately.
Edit 2: I re-did the math and made corrections.
Edit 3: I checked with my finaid office and the Direct Unsub annual maximum includes origination fees. So if you take the 9-month max of $40,500, you'll receive $38,243.63 and owe $40,500. The annual limit depends on the length of the term. Confirm with your school for their exact numbers.
10 month term: $42,722
11 month term: $44,944
12 month term: $47,167
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I'm going to have my parents take a mortgage out of their house. The interest rate right now is at an all time low at 3.1% I think. I'll just have to pay them back later on, but that might be a good option if your parents are down for that.
My dad is thinking the same way.
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That's a terrible idea to put your parents' house at risk for a few percentage points of interest
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Other benefits include:
- Unlimited deferral while in school, private loans have a cap on how long you can defer or enter forbearance
- PAYE and similar programs allow you to pay a lot less when you are in residency and if you have financial hardship after residency
- Loans are discharged if you die
- No prepayment penalty
- Easily consolidation that doesn't require a credit check
- No need for a cosigner (unless you have really terrible credit for Grad plus)
- Very easy to apply
It is all about trust I think. Can you please elaborate on why you think so. Per loan document interest starts accruing the day you take the money out. Interest accumulation is not deferred until graduation for graduate loans.
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Because we can never predict exactly how our lives will pan out. What if you become disabled and your parents are stuck with another mortgage? I wouldn't want that held over my head. Ultimately it is your choice, but that is the way I feel about it.
Interest does start accruing the day you take the money out, but you don't have as much flexibility in paying it back with private loans.
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Being married, this is a big advantage. If something happens during or immediately after medical school, the last thing you want is to leave a spouse with a huge loan.
D
deleted994889
@DHoang3 @rx001 @Cornfed101
Let's do that math! [insert snazzy tune] Assuming 3.1% and no origination fees (generous conditions) on a single disbursement for $162,000 at the beginning of M1 (I'm not sure if you can break it up into several disbursements), your total bill at end-M4 would be approximately $177,537.87, a best case scenario savings of about over $12,617.41 my maxed-out Direct Unsub example.
As Corn said, it's a risky gamble. You don't know if something will happen to you or your family. To be fair, the likelihood of anything happening is probably low. Ultimately, its up to you and your family whether the risk is worth it. I personally think playing safe is best.
Plus you don't know if Bernie gets elected and forgives all loans
Edit: I fixed some math errors. The savings are slightly higher.
Let's do that math! [insert snazzy tune] Assuming 3.1% and no origination fees (generous conditions) on a single disbursement for $162,000 at the beginning of M1 (I'm not sure if you can break it up into several disbursements), your total bill at end-M4 would be approximately $177,537.87, a best case scenario savings of about over $12,617.41 my maxed-out Direct Unsub example.
As Corn said, it's a risky gamble. You don't know if something will happen to you or your family. To be fair, the likelihood of anything happening is probably low. Ultimately, its up to you and your family whether the risk is worth it. I personally think playing safe is best.
Plus you don't know if Bernie gets elected and forgives all loans
Edit: I fixed some math errors. The savings are slightly higher.
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I think the savings would be more than that. There is no way that you can pay for school just using direct Unsub loans, and you'd have to get GRAD PLUS to cover the rest. Most students end up with around 200k+ debt at the end of M4, and your 177k bill would indicate at least a 20-25k savings. This doesn't include the 3-7 years of residency. I know it ain't much when compared to the overall, but it's definitely something to consider as an option. I'm fortunate that my parents have already paid off the house, and if need be they do have the means to make monthly payments on the mortgage. Again it's just an option to pay the med school game.
D
deleted994889
I was using the $177,000 bill as an example to show potential savings. I didn't include residency years because refinance rates are currently comparable to mortgages (3-4%). Since your parents have the means, they could start paying off your federal loans immediately. You'd still reap those federal benefits while minimizing total loan burden. That's another option.
I'm not arguing one way or another. The choice is yours. I haven't figured out what I'm going to do myself.
Edit: I've fixed some math in my earlier posts. There difference is closer to $12K which I'd say is a sizeable sum.
Disclaimer: these numbers are my rough estimates please run them yourself before making any decisions
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D
deleted994889
I checked with my finaid office and the Direct Unsub annual maximum includes origination fees. So if you take the 9-month max of $40,500, you'll receive $38,243.63 and owe $40,500. The annual limit depends on the length of the term. Confirm with your school for their exact numbers.
10 month term: $42,722
11 month term: $44,944
12 month term: $47,167
10 month term: $42,722
11 month term: $44,944
12 month term: $47,167
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Certainly can loan elsewhere. However, you amplify your risk many orders of magnitude. The interest rates in federal loans are set by Congress. The upside is that you receive the protections of Law surrounding them. It is nice and safe and cozy here because if something goes wrong down the line things like PSLF exist. Even if it goes away in the future, Congress typically grandfathers those in a program currently.
Private loans may have lower interest rates. However, be very cautious before leaving the protection federal loans provide.
David D, MD - USMLE and MCAT Tutors
Med School Tutors
public loan forgiveness happens very rarely. Even if it happens it is usually at the undergrad level. graduate level loans are least preferred ones for public forgiveness.
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I hope your parents are taking nice sized life insurance policies out on you guys.
This isn’t a great idea. You may think trust is what it’s about... but nobody can trust if you die or become disabled unexpectedly. They’d be stuck with another “house”.
source: i know a CFA who also says this is a terrible financial decision.
This isn’t a great idea. You may think trust is what it’s about... but nobody can trust if you die or become disabled unexpectedly. They’d be stuck with another “house”.
source: i know a CFA who also says this is a terrible financial decision.
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I expect PSLF success to become much more common. People weren’t super familiar with the rules and they didn’t do it right. Also, most of the presidential candidates have plans to simplify this program so more people qualify.
Why The Public Service Loan Forgiveness Headlines Are Misleading
The headlines surrounding Public Service Loan Forgiveness are misleading. Understand the nuances and learn why the program is working as intended.
www.forbes.com
Here are current projections from the fed listed in that article for the number of people who are expected to receive forgiveness
- 91-120 Months (8 to 10 years): 1,724 – Estimated Forgiveness 2019 to 2021
- 73-96 Months (6 to 8 years): 10,428 - Estimated Forgiveness 2021 to 2023
- 49-92 Months (4 to 6 years): 45,235 - Estimated Forgiveness 2023 to 2025
- 25-48 Months (2 to 4 years): 147,686 - Estimated Forgiveness 2025 to 2027
- 1-24 Months (up to 2 years): 413,922 - Estimated Forgiveness 2027 to 2029
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