is it better to go with School or Private Loans?

[amonkeybutt]

okay, so i'm a little unfamiliar with how this works. but is it better to go with the stafford loans that the school offers as part of the financial aid package or apply for loans from private companys (eg. Medloan)? or do people only apply for private loans to cover anything over the $38,500?

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[analu]

Hi, although I'm a neophyte, I'll try to tackle this one. After you file with FAFSA, your EFC (estimated financial contribution) is determined, and your financial aid office determines the amount of subsidized and unsubsidized Stafford loans you will be able to receive (in addition to any other grants, work-study, etc. that's available). Depending on the student budget (determined by your FAO), the Stafford loans offered may not be enough...that's where alternative loans come into play.

Stafford loans are easy to qualify for and have good interest rates and terms (government loan), while private loans typically have higher interest rates, origination fees, etc. Therefore, Staffords should be used to fulfill most of your financial need (that is, if you can't get tuition waivers, grants, scholarships, etc.) Moreoever, your credit-rating determines the type of terms a lender will be willing to give you for that private loan, i.e. the better your credit, the better the interest rate or up-front fees they'll offer.

My FAO recommended that if I needed to apply for an alternative loan to make up the difference between the student budget and my Staffords, I should try to use one lender to administer both. I think I'm going the MEDLOANS route...recommended by the AAMC and administered by Bank One. Do a search on the AAMC website for the MEDLOANS terms for their Stafford and ALP (alternative loan program) loans.

One more thing: all lenders are NOT created equal. Even though it's the same Stafford loan, some lenders pay the origination and guarantee fees for you, some give interest rate cuts after a certain number of on-time loan payments, others cash-back...it can get confusing when you are lender shopping. Take your time, read the fine print, and best of luck to you!!!

 

[daisygirl]

Hi Analu,
I am still debating a lender. I would like to know (if you don't mind) why you chose medloans versus a lender such as T.H.E.? Or in other words, why did you choose a lender that charges origination fees vs. a lender that doesn't. I really cannot make up my mind what to do and I thought it would help to get another's perspective.

 

[KyGrlDr2B]

Everyone has been telling me to use a lender with no origination fees. They say the less money you have to pay up front, the better it is for you. Repayment incentives are a plus, too, but right now you don't have the money to pay extra fees. I chose t.h.e just for that reason.

 

[analu]

Hi daisygirl, MEDLOANS just came out with something called the "Healthier Returns Program," which credits the borrower 3.5% of the balance at repayment, somewhat offsetting the 3% origination fee charged upfront. Of course, the 3% origination fee is subtracted from the amount sent to the school, and you lose 4 years worth of interest/use of that 3%, but I feel it's virtually a wash for me (considering my loan amounts are not maxed out--state tuition). The MAIN REASON I'm probably going with MEDLOANS is because its one of the "recommended" lenders my school does electronic transactions with. When I asked if I could use T.H.E., they said that I'd have to transact via snail mail and could not guarantee that my funds would be available by the tuition deadline. Gotta play the game their way