Public and Private Loans

[student til 30]

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[Pragma]

I have a question about loans and was wondering if anyone can offer any words of wisdom.

Right now I am in a funded program that I can complete without taking any further loans. I took out public and private loans to pay for school before I started my doctoral program. I have maxed out my 4 years of in-school deferment for the private loans, the private loans are due, and I can't pay them on my stipend and frankly I want to pay as little as possible out-of-pocket. At the moment it seems like a great idea to take out federal loans to pay my private loans, then take advantage of income based repayment and public service loan forgiveness later. I receive the HPSP scholarship and will be in the military for at least four years (internship plus 3 years). This means that I will qualify for loan forgiveness after 120 payments, that interest will be capped at 6% while I'm on active duty, and that the military might repay a good deal of my loans if I remain in service beyond the term of my current contract and qualify for retention incentives.

I'm wondering if there are any downsides to this strategy that anyone is aware of. Also, I'm wondering if Sallie Mae requires monthly payments for private loans, or if it is possible to pay once per semester (not monthly) until the private loans are gone. I believe that I can defer for another year in three month increments if need be, though that will cost $100 per deferment. Ideally I could make a clean transfer of funds from public loan refund to private loans each semester, but I might be dreaming.

If anyone has any experience with this I'd be happy to hear it. Also, I recognize that a fellow graduate student is not a financial planner, and won't confuse lived experience with professional advice. Thanks for any input, and happy new year.

I can't really offer any advice about your Sallie Mae issues, but I just know that the private loans are harder to negotiate than the public ones are. As far as your other strategy goes, it sounds good in principle, but there are a lot of assumptions that go with it. There is no guarantee that loan rates will remain the same, that the PSLF program will remain in place, etc. Using those types of funds to pay off the other ones would involve some risk.

Military positions seem to give you a lot of financial benefits. Your problem now is a cash flow problem that you would not have if you had not taken out private loans. Perhaps others will have some other types of advice that could extend beyond taking out loans to pay off loans.

 

[xXIDaShizIXx]

I can't really offer any advice about your Sallie Mae issues, but I just know that the private loans are harder to negotiate than the public ones are. As far as your other strategy goes, it sounds good in principle, but there are a lot of assumptions that go with it. There is no guarantee that loan rates will remain the same, that the PSLF program will remain in place, etc. Using those types of funds to pay off the other ones would involve some risk.

Military positions seem to give you a lot of financial benefits. Your problem now is a cash flow problem that you would not have if you had not taken out private loans. Perhaps others will have some other types of advice that could extend beyond taking out loans to pay off loans.

I understand where you are coming from OP, but don't take out loans to pay for loans, then you are playing the revolving debt game, where only the creditors win.

 

[chman]

Personally, I think you would be in a much better position owing federal government loans than owning a private lender. Maybe talk with a financial counselor at your school or something, especially to make sure it is legal to do so, etc., but if it were me, I would much rather owe for federal student loans.

Of course there are other things to consider, like the interest rate of your current loan vs what it would be to get a federal one, etc.

 

[xXIDaShizIXx]

Personally, I think you would be in a much better position owing federal government loans than owning a private lender. Maybe talk with a financial counselor at your school or something, especially to make sure it is legal to do so, etc., but if it were me, I would much rather owe for federal student loans.

Of course there are other things to consider, like the interest rate of your current loan vs what it would be to get a federal one, etc.

Yes, but more loans do not necessarily solve the problem is what I am trying to say.

 

[chman]

Yes, but more loans do not necessarily solve the problem is what I am trying to say.

No, doesn't necessarily "solve" the problem. But it may make it easier. We could probably agree it is better to owe a lower interest rate that is deferred until 6 months after graduation than to owe a higher interest rate that is due while still in school right? Government loans have a lot of resources, and you only have to pay for a fixed amount of time.

There are a lot of factors here, and OP should really talk to someone in accounting, but I certainly don't think it is an idea that should be dismissed outright.

 

[xXIDaShizIXx]

No, doesn't necessarily "solve" the problem. But it may make it easier. We could probably agree it is better to owe a lower interest rate that is deferred until 6 months after graduation than to owe a higher interest rate that is due while still in school right? Government loans have a lot of resources, and you only have to pay for a fixed amount of time.

There are a lot of factors here, and OP should really talk to someone in accounting, but I certainly don't think it is an idea that should be dismissed outright.

Fair enough.