The rate for the loan you are looking at is variable and based on the LIBOR + 2-8, not just a cap at 8%. I think the LIBOR is about 1.5 now so if you take that and add it to the highest margin, you're already over the 8%. Hopefully that part made sense. I'm would guess the cap would be the states max and most have a cap of 18% but not all so I would certainly call and ask.
They are also going to charge you fees to borrow between 0-6%.
The value of a Stafford/PLUS is not the interest rate and I realize everyone of you is all about the rate until you understand and consider the risk factor. Most of my dental kids are all about the rate until I sit them down and explain the risk side. I would never recommend any of my kids take an alternative/private loan unless their back was against the wall and they knew the risk and were ready to accept it. Fortunately they all get it when I explain it and reconsider. A gradPLUS at 8.5 is an easy sell when they consider something more than the rate.
In federal lending there is an automatic forgiveness clause for death and perm disability. The long term risk to your parents or future family is nil. With an alternative/private loan I can guarantee you they'll be at the table when your estate is broken up to collect their piece. If you have a co-signer, they'll be paying it long after you are gone as they are legally liable and nothing would be suckier as a parent than to lose your kid and be in repayment. The repayment plans for fed loans are more flexible as well with deferment and forbearance and payments based on your income should you not attain your degree. Fed lending is a social program with a safety net bought and paid for by the taxpayers.
I am quite certain that an alternative/private loan will not be as flexible since they are in it to make a profit and that depends on you paying it off within a certain time period as there comes a point in time they will start losing money if you don't pay. I have seen a plethora of crappy alternative loans taken by clueless undergrads and their parents because of a rate differential only to find their kid in repayment while in dental school. I also have specialty kids coming from their DMD with crappy alternative loans as well so I encourage you all to ask the questions before you borrow the money.
Shopping for student loans is not like shopping for a mortgage and just comparing rates. I encourage you to compare the risk as well as the repayment, forgiveness, what if my life takes a tragic turn options throughout your prospective repayment. I would also point out that you'll most likely never find another lender willing to consolidate it later.
In short: read the loan note (contract) you are signing and understand the pieces beyond the rate before you decide. Also pay attention to the little language at the bottom of that website where they post the disclaimer: we reserve the right to suspend any incentive at our will and that's when they decide they'll lose money. They are banks and these loans are to generate revenue and not to help poor kids get educated.
I encourage you to call the lender you are considering and ask them "what happens if I die or I can't earn enough to pay later or I can't because I'm in between job etc?" Federal loans will come with unlimited forbearance throughout their repayment, private/alternative will most likely have a 12 month total over the repayment. I would rather have the ability to not make a payment and eat the interest rather than be required to pay on something I just couldn't and if I didn't: fees added on top and my credit affected.
Risk is more important than rate... not that you were looking at a good one either. Best of luck.
