low variable private loan vs high fixed federal loan

[antapolar]

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Hi,

So I'm having a bit of decisions to make at the moment. Aside from the contribution of the stafford (sub/unsub) loan for med. I have choices of meeting the cost of attending by using either the Federal direct plus loan (at 7.9% fixed rate) or a Canadian private bank student line of credit (at 2.25% prime only variable rate). While the canadian line of credit will have addition exchange rate issues, it does offer a very low interset rate at the moment. However, being a bank I'm not sure if this is favorable at all? I feel that the interest rate will definitely rise in the future but just not sure how much. So should I stick with the direct plus to meet the end? Any opinion is appreciated, thanks.

 

[dotdash]

The variable rate is great! I don't think you could get such a rate in the US for *anything*. For a home equity loan, a US bank offered me a 7.375 fixed or 4.5% variable (the idea being that these are roughly equivalent in terms of risk/lifetime cost). So the 2.25% would seem to be great. That being said, I'm not sure how the Bank of Canada sets the prime and how often they change it. Someone there could probably advise you better.... The rate would have to go up astronomically fast for you to lose more money on the variable than the fixed, but you can do the math. Calculate how many years you will have the loan, and then test some prime-goes-up scenarios to see which is cheaper.