Private vs federal loans

[Backsideattacked]

What are the pros and cons of each?

I was recently at interview in which the school cannot offer federal loans yet. In their presentation they ran numbers and in the long haul, taking private loans was cheaper in the long run (interest rates?) and also they mentioned that after graduation, you have a longer deferment period with private loans?? Tbh this was awhile ago so I forgot details and or mixed up details.

Can anyone clear this up and or explain like I’m 5 lol. Thanks

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[arc5005]

What are the pros and cons of each?

I was recently at interview in which the school cannot offer federal loans yet. In their presentation they ran numbers and in the long haul, taking private loans was cheaper in the long run (interest rates?) and also they mentioned that after graduation, you have a longer deferment period with private loans?? Tbh this was awhile ago so I forgot details and or mixed up details.

Can anyone clear this up and or explain like I’m 5 lol. Thanks

what? what school can't offer federal loans? is the program not accredited?

 

[Backsideattacked]

what? what school can't offer federal loans? is the program not accredited?

Newer DO schools still in pre-accreditation

 

[Mad Jack]

So here's the problem with private loans.

You accrue compound interest from day one, they are not forgiven in the case of death or disability, and they are not eligible for any federal payment plans or forgiveness options. The interest rates are favorable, but the problem is federal loans offer a significant interest bonus with REPAYE in the sense that all of your interest over the cost of your base payment is halved. That effectively cuts interest in half during residency. PSLF will give you three or or four years of credit already via residency, six or seven years and you get tax free forgiveness. 25 years of regular payments and you get taxed forgiveness, which can pay off in the long run if you do things right.

 

[Backsideattacked]

So here's the problem with private loans.

You accrue compound interest from day one, they are not forgiven in the case of death or disability, and they are not eligible for any federal payment plans or forgiveness options. The interest rates are favorable, but the problem is federal loans offer a significant interest bonus with REPAYE in the sense that all of your interest over the cost of your base payment is halved. That effectively cuts interest in half during residency. PSLF will give you three or or four years of credit already via residency, six or seven years and you get tax free forgiveness. 25 years of regular payments and you get taxed forgiveness, which can pay off in the long run if you do things right.

Hmm okay thanks! So would you consider attending a school that will require me to take private loans for 2 years be detrimental to my financial future lol

 

[arc5005]

is this like ICOM? isn't ICOM the only new school?

 

[Mad Jack]

Hmm okay thanks! So would you consider attending a school that will require me to take private loans for 2 years be detrimental to my financial future lol

That depends on your risk tolerance. I'd say being a doctor with loans is better than not being a doctor though, so if it is your only option...

 

[Backsideattacked]

is this like ICOM? isn't ICOM the only new school?

Yup. Along with BCOM if I’m not mistaken. I was just intrigued because they somehow showed private loans as a good alternative.

 

[Reverb]

Yup. Along with BCOM if I’m not mistaken. I was just intrigued because they somehow showed private loans as a good alternative.

Deterring students from private loans would essentially be deterring most students from attending the school (except for that one kid with the Maserati). So its no wonder they made them sound appealing. As stated above, if its your only acceptance and reapplying is not an option, go for it.

 

[Backsideattacked]

Deterring students from private loans would essentially be deterring most students from attending the school (except for that one kid with the Maserati). So its no wonder they made them sound appealing. As stated above, if its your only acceptance and reapplying is not an option, go for it.

I am certainly not the kid with the Maserati

 

[Reverb]

I am certainly not the kid with the Maserati

Piece of junk Fiat anyways lol

 

[Backsideattacked]

Piece of junk Fiat anyways lol

Hahah very true.


Oh yeah. Do you mind taking a look at this? How would you compare this to a federal loan? Interest rates seem competitive and no repayment is necessary until 36 months after graduation.
Medical School Private Student Loans – MedCAP Loan | Wells Fargo

 

[Reverb]

Hahah very true.


Oh yeah. Do you mind taking a look at this? How would you compare this to a federal loan? Interest rates seem competitive and no repayment is necessary until 36 months after graduation.
Medical School Private Student Loans – MedCAP Loan | Wells Fargo

I'm no financial expert, but I see four red flags.

First, as stated above, there is no federal programs that allow you to pay off the loan faster, reduce payments, etc. Second, those intrest rates are much higher than a federal loan and are "subject to change at anytime during the life of the loan." They are also advertising the lowest starting interest rates. Which, assuming you don't have a prior loan with Wells Fargo, that means even if you had an 800+ credit score, your rate would start at 10.18%. Assuming you don't have that credit score, it will surely be higher. Please note that to even be eligible for this loan, "you must have an established, positive credit history." Third, although the grace period is six times longer than that of a federal loan, this just means you'll be paying a lot more interest. Additionally, for federal loans, you can apply for income based repayment options. This means that if you are making $3000 a month as a resident (after taxes), you're payments wont be $2300 a month, they will be more like $500 a month. The income-based repayment options are specific to federal loans which plays into my first point, as stated above. Lastly, the capital (money you take out before any interest) is capped at a lifetime of $250,000. Even if your school costs $60,000 a year, that leaves you with $2500 to live off of each year. When considering rent, living expenses, school supplies, etc. This is simply not possible to do.

I've always been a bit skeptical of private loans and after careful review of the link you posted, that skepticism has been reinforced. Be careful OP.

 

[Backsideattacked]

I'm no financial expert, but I see four red flags.

First, as stated above, there is no federal programs that allow you to pay off the loan faster, reduce payments, etc. Second, those intrest rates are much higher than a federal loan and are "subject to change at anytime during the life of the loan." They are also advertising the lowest starting interest rates. Which, assuming you don't have a prior loan with Wells Fargo, that means even if you had an 800+ credit score, your rate would start at 10.18%. Assuming you don't have that credit score, it will surely be higher. Please note that to even be eligible for this loan, "you must have an established, positive credit history." Third, although the grace period is six times longer than that of a federal loan, this just means you'll be paying a lot more interest. Additionally, for federal loans, you can apply for income based repayment options. This means that if you are making $3000 a month as a resident (after taxes), you're payments wont be $2300 a month, they will be more like $500 a month. The income-based repayment options are specific to federal loans which plays into my first point, as stated above. Lastly, the capital (money you take out before any interest) is capped at a lifetime of $250,000. Even if your school costs $60,000 a year, that leaves you with $2500 to live off of each year. When considering rent, living expenses, school supplies, etc. This is simply not possible to do.

I've always been a bit skeptical of private loans and after careful review of the link you posted, that skepticism has been reinforced. Be careful OP.

Thank you! I am now too wary of private loans. Gonna have to reconsider my school options.

 

[_Rod_of_Asclepius_]

What about Incarnate Word? I know they’re new too...

 

[Cheese Machine]

I may be wrong, but I am pretty sure UIWSOM automatically qualifies for Federal Loans since it is part of an established university. BCOM is only loosely affiliated with NMSU so I think it counts as a brand new institution, where as UIWSOM does not.