OK, lets clear something up for everyone.
1. I appreciate your concern.
2. Unfortunately you are still misguided. The private lenders, such as Sallie Mae participate in the FFELP therefore they are subject to all of the government regulation since the feds are still the guarantor. These are not the private loans you are thinking about, where the guarantor is another private company that charges insurance in case you default and therefore raises your interest rates. Such loans are called the alternative loans, and that IS NOT what I got. The loans I received were exactly the same as yours. THEY WERE STAFFORD LOANS, with subsidized portion of 8500/year and the rest unsubsidized. You also received Stafford loans but they were direct stafford loans (mine were medloans stafford loans). The same origination fees were applied to your and my loan. Also the same interest were applied for my Stafford loans as your direct stafford loans. Also the same defferement terms apply to your loans as my loans. Again, the terms of your loans and my loans were exactly the same as regulated by the FFELP. There is no question about this, period. The difference is that your lender was direct loans, my lender was medloans affiliated with bank one/sallie mae and serviced by sallie mae, and again regulated by the FFELP. I also know a little about the direct loans since I have about 12K of direct loans from undergrad. You have been misguided and you should do the calculations yourself instead of spiting out the garbage they fed you during your consolidation seminar. Since even if there is a rebate of 1.5% on the direct loans (for people who used direct loans as their lender in med school) this rebate is not worth much. Do the calculations. $150,000 consolidation loan x 1.5% = $2250. This is chump change compared to how much money the capitalized interest is going to be worth. If you think that the SallieMae CEO is pocketing this and making money off of you, you are highly misguided. Would you give anybody a loan of 150K to make 2K/30years (assuming everything else is the same between direct loans and medloans/salliemae and this constitutes your argument of where the "rich CEOs are riping us poor med students off").
Just to explain how business works. Direct loans is a nonprofit organization. It is also a governemtn agency and is highly inefficient bureaucracy (just like the postal service). Direct loans don't compete with the private sector becuase they can't. BTW, the money that both direct loans and the SallieMae do make off of you don't go directly to the CEO's pocket, contrary to what you think. In a business you have to pay your customer support staff, phone lines... The smart question would be, how can Salle Mae offer us med students the ability to fix such a low interest rate at 2.77% for 30 YEARS. This is well bellow the rate of inflation. This is not taking into account all the expenses that a company has to pay for to manage your loan. So how is this possible? Do they cover the rate of inflation and make a profit with your 2K (from 1.5% rebate) that you were so eagerly pointing out. Probably not, since 2K will not cover a 150K loan/30 years. The place where they make money is on people who default on their laons, the late payments... They can afford a few good borrowers who pay back their loans on time, and make up for any losses on those who go into collections. Look at their collections fees. Actually, these are pretty much the same with direct loans. This constitutes 80% of their business (I am not exaggerating on this one, look it up for yourself), both sallie mae and direct loans. Sallie Mae is much more profitable then direct loans and this why they are able to offer a more competative rate. Sallie mae has a 1% interest reduction after 48month of consecutive payments. So basically, if you are doing IM (3 years) and then fellowship (3 years) you will have 20 years of interest rate as low as 1.6 (-1%, and -0.25 with direct payment). 1.6% over 20 years is dirt cheap, and much better then 1.5% rebate upfront. Direct loans simply could not do this. Again consolidation with private companies, like sallie mae who are eligable to participate in the FFELP is better then using direct loans for consolidations. The terms of borrowing and consolidating ARE EXACTLY THE SAME FOR COMPANIES
WHO PARTICIPATE IN FFELP, whether private company or direct loans! The difference is in the perks, period.
I would strongly suggest that you do the calculations for yourself, even if the direct loans offeres this 1.5% loan consolidation rebate for people who have borrowed with them.
Good luck
Please don't take any of this personal. I know a lot of this is confusing. I just don't want people to get more confused who are reading this thread.
EvilNewbie said:
Sorry to hear that you guys aren't offered direct loans which is weird, since as far as I know all US medical schools offer these loans since they have better interest rates but you used private lenders to finance your medical school probably at a higher rate (prime maybe?). You are right in that since you used private lenders you can "mostly" only consolidate with them. The 2.88% is the "weighted" average of all interest rates for your loans "with" federal loans though, I don't know about private lenders letting you do this though. If you have direct loans then everyone consolidates on the weighted average (private lenders or not and when you actually go out of grace period and into repayment at 3.2% (?) interest rate instead (again irregardless of whether you consolidate with the government or not). This means that the interest rate will NOT be 2.77% but higher and when you actually pay, it's even higher still. The reason you haven't heard about the 1.5% rebate is because it is through direct loans but "some" private lenders have their own rebates which you could lose when you go with consolidation with another lender (in this case you need to ask your FA AND your private lender). Perks are meant to be deceiving because the more they give the more they lose (and they are definitely not idiots when their CEO makes 30 million a year)... You are right in that your best bet is to consiolidate with your private lender cause the cost benefit is MUCH better with them since you probably got some incentive on the private loan at the beginning and would lose it if you went somewhere else... It's great to hear that Sallie Mae will let you defer during residency with your private loans!! With federal loans however, you can only defer with the federal government and lose it if you consolidate with private lenders...
