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Lowered Student Loan Rates for 2015-2016

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Glimmer1991

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Hi, all!

Quick question for the people who know more about money than I do. :)

For the 2015-2016 school year, the rates for student loans are expected to fall around 0.37%, as predicted by this article:
http://www.forbes.com/sites/maggiem...an-rates-set-to-drop-for-15-16-academic-year/

I'm about to be starting my second year of dental school. Last year, I only took out $25,000 of the $40,500 that I am being offered of the Federal Direct Loan. I plan to take out the same amount this year.

Since loan rates are being lowered, would it make any sense for me to take out the remaining 15k that I am being offered and use it to pay down some of the $25,000 from last year that is accruing interest at a higher rate? I know there may be an issue with the origination fee (I think it was 1.073% last year), but I'm not quite sure how to do the calculations to see if it is worth it in the end. If it makes any difference, I will have around 100k in loans when I graduate, and I hope to have them paid off within 3-5 years.

Thank you so much!
 

Plastikos

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0.37% sounds very very small and likely not worth the time and costs of obtaining the loan. However, I would always do the math first. You're probably better off waiting until you graduate and refinancing into a substantial savings instead.

Congrats on taking out less than needed.
 

James Martin

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College students and graduates have been feeling the effects of high student loan interest rates for several years. Lucky for those still in school, federal student loan interest rates have dropped for the 2015-2016 academic year.
 

Information Underload

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Use an amortization calculator. From my results, you are saving $7.60 per month in interest that way. You will come out ahead of the origination fee that way in a few years and about $250 ahead in 7 years. Not great, eh? You may save more by only incrementally taking out what you need for living expenses as opposed to lump sums
 
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cheeseburguesa

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Use an amortization calculator. From my results, you are saving $7.60 per month in interest that way. You will come out ahead of the origination fee that way in a few years and about $250 ahead in 7 years. Not great, eh? You may save more by only incrementally taking out what you need for living expenses as opposed to lump sums

What if the OP takes out the money this year and either holds it or puts it in an index fund so that he can take out less money next year?

The reason I ask is because I'm actually in a similar situation... borrowing at 5.84% sounds much more attractive than borrowing at whatever the rate will be next year (signs strongly point to rates increasing substantially). In 2013-2014, the rate was 5.41% - I'm still annoyed at myself for not maxing out that year.

Wouldn't it make more sense to max out at a lower rate now? The extra origination fee is going to be paid sooner or later anyway if OP still has to take out unsubsidized stafford loans next year (like me).


I was actually planning on maxing out and doing one of two things:
1) Pay down some of last year's 6.21% loan with the surplus loan @ 5.84%.
OR
2) Put the money in an index fund and hope for the best. If it goes down, I'll just take out a new loan from the government next year. If it goes up, I'll withdraw the money and use it to pay my tuition next year.


Are either of these good ideas? Unfortunately, I am expecting to hold these loans for at least the next 10 years..
 
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ThoracicGuy

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    What if the OP takes out the money this year and either holds it or puts it in an index fund so that he can take out less money next year?

    The reason I ask is because I'm actually in a similar situation... borrowing at 5.84% sounds much more attractive than borrowing at whatever the rate will be next year (signs strongly point to rates increasing substantially). In 2013-2014, the rate was 5.41% - I'm still annoyed at myself for not maxing out that year.

    Wouldn't it make more sense to max out at a lower rate now? The extra origination fee is going to be paid sooner or later anyway if OP still has to take out unsubsidized stafford loans next year (like me).


    I was actually planning on maxing out and doing one of two things:
    1) Pay down some of last year's 6.21% loan with the surplus loan @ 5.84%.
    OR
    2) Put the money in an index fund and hope for the best. If it goes down, I'll just take out a new loan from the government next year. If it goes up, I'll withdraw the money and use it to pay my tuition next year.


    Are either of these good ideas? Unfortunately, I am expecting to hold these loans for at least the next 10 years..

    The only part of doing an index fund is keeping it in long enough to make your gains into long term capital gains rather than short term, affecting your tax rate.
     
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