Loan Help

[BigBlueBear]

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I'm hoping to get some perspective from new people on this. I have the opportunity to get a private loan at an interest rate of ~3.5%. It is a variable rate, however I don't really see the federal reserve raising the prime rate anytime soon so I don't really see that as a concern.

It seems like a 3.5% rate versus the government's 6.8% is a no brainer, but everyone I have talked to says to always take federal loans before you take private loans. Can somebody explain why? I know federal loans have IBR, but I'm incredibly frugal and never buy anything I don't need, so I don't see myself struggling to pay off a loan even with low income. Are there any other concerns?

 

[Doctor Strange]

Private loans require a credit check and a co-signer if your credit is not good enough. If you die, federal loans are forgiven, many private loans are not, leaving your co-signer and/or family to make up the difference. There's also some tricky deferral terms when it comes to private loans depending on who you borrow from.

Also, federal loans don't capitalize until you enter repayment, where a lot of private loans will.

 

[RogueUnicorn]

I'm hoping to get some perspective from new people on this. I have the opportunity to get a private loan at an interest rate of ~3.5%. It is a variable rate, however I don't really see the federal reserve raising the prime rate anytime soon so I don't really see that as a concern.

It seems like a 3.5% rate versus the government's 6.8% is a no brainer, but everyone I have talked to says to always take federal loans before you take private loans. Can somebody explain why? I know federal loans have IBR, but I'm incredibly frugal and never buy anything I don't need, so I don't see myself struggling to pay off a loan even with low income. Are there any other concerns?

.... but you're not paying these off any time soon are you

 

[phranklee]

Also, most private loans offer severely limited repayment options -- No IBR, no PAYE, and you're definitely not eligible for federal forgiveness programs. In many cases you're even penalized for (or banned from) making more than the minimum monthly payments.

Considering all that along with the fact that your rate can change drastically at any time and the accrued interest probably capitalizes immediately, I definitely think federal loans are, in the vast majority of cases, the way to go.

 

[red doctober]

Private loans require a credit check and a co-signer if your credit is not good enough. If you die, federal loans are forgiven, many private loans are not, leaving your co-signer and/or family to make up the difference. There's also some tricky deferral terms when it comes to private loans depending on who you borrow from.

Also, federal loans don't capitalize until you enter repayment, where a lot of private loans will.

I didn't think this was the case for unsubsidized and grad plus loans. Am I missing something?

 

[Doctor Strange]

I didn't think this was the case for unsubsidized and grad plus loans. Am I missing something?

Interest accrues, but it does not capitalize from what several med students on here have said.

 

[RogueUnicorn]

interest accrues and capitalizes

 

[red doctober]

Interest accrues, but it does not capitalize from what several med students on here have said.

Meaning, for example, that if you have a $50K loan from 1st year the interest for the next 3 years on that loan is .068x50000 = $3400/yr; not $3400 after the 2nd year, .068*$53400 = $3630 after the 3rd year, etc?

 

[Doctor Strange]

Meaning, for example, that if you have a $50K loan from 1st year the interest for the next 3 years on that loan is .068x50000 = $3400/yr; not $3400 after the 2nd year, .068*$53400 = $3630 after the 3rd year, etc?

Wait, looks like I'm wrong.

"If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan)."

http://studentaid.ed.gov/types/loans/subsidized-unsubsidized

I could have sworn someone in another thread said it didn't capitalize in school... 😳 Here: http://forums.studentdoctor.net/showthread.php?t=1002862

 

[red doctober]

Wait, looks like I'm wrong.

"If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan)."

http://studentaid.ed.gov/types/loans/subsidized-unsubsidized

I could have sworn someone in another thread said it didn't capitalize in school... 😳 Here: http://forums.studentdoctor.net/showthread.php?t=1002862

It sucks to think that at the end of med school, not only do you have however much money in the loans themselves but also possibly tens of thousands of dollars in interest already accumulated.