Student Loan Questions

[EK18]

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Hey guys,

I just wanted to ask if anyone used private loans in addition to federal loans to cover their school finances. I'm borrowing the max Federal Stafford for the year ($40,500) and then taking out a little bit of Grad PLUS to cover the rest.

Now Stafford Loans aren't that bad from what I can tell (6.8% fixed APR with 1.051% origination fee). I plan on using as much of the Stafford Loans as I can. However, the Grad PLUS loans are much worse (7.9% fixed APR with 4.204% origination fee). Would it be better to find a private loan instead of the Grad PLUS? Sallie Mae offers an alternative to Grad PLUS that doesn't have an origination fee, but I know that there are certain benefits to federal loans, like IBR and loan forgiveness if you work in public service. Does anyone have experience with that?

Thanks for any input.

 

[Moose A Moose]

Dude, it all boils down to this: stick with loans that offer IBR. Speaking from a wealth of borrowing experience

 

[heybrother]

Dude, it all boils down to this: stick with loans that offer IBR. Speaking from a wealth of borrowing experience

Agreed. We discussed IBR a bit here. http://forums.studentdoctor.net/showthread.php?t=993475

Per this website (below) private loans are not eligible for IBR.
http://studentaid.ed.gov/repay-loans/understand/plans/income-based

Perhaps there's an amazing deal out there for the person who digs for it, but I looked at the Wells Fargo/Discover/Sallie Mae private loans and I don't think most people would find them very flexible. Currently Discover's best fixed rate is 5.49, Sallie Mae is 5.74, and Wells Fargo is 5.98. Swell - those are lower than the Stafford rates. But there's a catch.

Wells Fargo and Discover offer 20 year repayment plans while Sallie Mae seems to offer 5-15 years. Do the math and you'll sadly discover that you probably cannot afford a 20 year repayment plan on a resident salary. For example - Wells Fargo will give you 6 months to begin repayment and will allow you to borrow $180,000. The monthly payment on $180,000 at 5.49 (the Discover rate - just cause its the lowest) is still $1287 a month / $15444 a year.

Anyway - forget the numbers in my example as they will have changed by the time you borrow the money. Whatever you decide upon - know your repayment plan options. IBR is by its very definition made to fit your salary.

 

[AMDG83]

Another thing to consider with private loans is this: If you happen to die, the cosigner will be responsible for your debt (usually a parent). Just FYI.

With federal loans, upon your death (I hope not), your spouse nor your parents are responsible for your debt.

 

[Moose A Moose]

Another thing to consider with private loans is this: If you happen to die, the cosigner will be responsible for your debt (usually a parent). Just FYI.

This was [a part] of the reason why my parents flipped when I bought a bike. Be forewarned, OP.

 

[tonguetalker]

Wells Fargo and Discover offer 20 year repayment plans while Sallie Mae seems to offer 5-15 years. Do the math and you'll sadly discover that you probably cannot afford a 20 year repayment plan on a resident salary. For example - Wells Fargo will give you 6 months to begin repayment and will allow you to borrow $180,000. The monthly payment on $180,000 at 5.49 (the Discover rate - just cause its the lowest) is still $1287 a month / $15444 a year.

When reading the Discover website, it says that you can defer your payments up to five years for residency. Does interest still accrue for payments under IBR during residency?

 

[MaxillofacialMN]

When reading the Discover website, it says that you can defer your payments up to five years for residency. Does interest still accrue for payments under IBR during residency?

I believe so, yes.

Realistically though, the income difference between residency and practicing should be substantial enough that the interest accrued those three years won't make it impossible to pay back. If you can score a job at a non profit for ten years, interest won't matter at all!

IBR just makes it so your payments are manageable during residency.

 

[audilover]

abra kadabra

 

[EK18]

Gotcha, so I should prioritize IBR first and foremost. It's just that God-awful 4.2% origination fee from the PLUS loan that's making me hesitate. Thanks for the input everyone.

 

[MaxillofacialMN]

Gotcha, so I should prioritize IBR first and foremost. It's just that God-awful 4.2% origination fee from the PLUS loan that's making me hesitate. Thanks for the input everyone.

Well wait though. Now that you've said this, I'm not convinced that PLUS loans are eligible for IBR anyways... It might ONLY be the Stafford... You should call your schools Financial aid department or research online. My quick Google search makes it seem like PLUS loans are ineligible for IBR anyways...

Is there any way you can pay tuition and live off of your 40k? You'll have to be ballin' on a budget, but it might be manageable...

 

[heybrother]

The government site I linked to above says the following.

Eligible Federal Loans
The following loans from the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program are eligible for IBR:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans without underlying PLUS loans made to parents
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans without underlying PLUS loans made to parents

Loans That Are Not Eligible
The following loans are not eligibile for repayment under IBR:

PLUS loans made to parents
Consolidation Loans that include underlying PLUS loans made to parents
Private education loans

 

[MaxillofacialMN]

The government site I linked to above says the following.

Eligible Federal Loans
The following loans from the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program are eligible for IBR:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans without underlying PLUS loans made to parents
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans without underlying PLUS loans made to parents

Loans That Are Not Eligible
The following loans are not eligibile for repayment under IBR:

PLUS loans made to parents
Consolidation Loans that include underlying PLUS loans made to parents
Private education loans

Nice find! The 4% origination fee will probably not compare to having to defer for 3 years...

 

[audilover]

abra kadabra

 

[jonod1107]

I just a PNC rate variable for 3.5% and I have 180 months to pay it back. I am assuming since this is an entire 1% less than discover this is really good.
[I really don't know much about loans, understand them etc.] It just seems from my research PNC at 3.5% is good, opinions?

You said it is a variable rate so how long is the 3.5% good for before the variable rates go into effect? Also, is there a limit how high the interest rate can go?

 

[ucfgrad10]

Anything with a variable rate stay away from. Have people not learned from the market crash/ housing bubble burst that variable rates are a risk not worth taking.

 

[jonod1107]

Anything with a variable rate stay away from. Have people not learned from the market crash/ housing bubble burst that variable rates are a risk not worth taking.

I wouldn't say stay COMPLETELY away from variable rates. There are different types of variable rates. For example, I would look for one that has a MAX interest rate CAP on how high it can go. Also, many educational loans have features like deference during residency training, graduation bonus ( example. .3% discount off your loan rate), etc.

So lets say you or your parents have the money to pay for school but it's tied up at the moment in some sort of investment. For example, you have rental income coming in each month but most of it is used to pay of the mortgage on that rental unit. But you know around 7 years when you get out of residency, some of that rental income can now be used to pay back the loans.


But for most people, the amount of money you save compared to the Direct loan of 7.9% and the time you have to take to jump through all the hoops may not be worth it in the end.

 

[EK18]

So, if a loan as a variable APR that ranges from 5% to 8%, does that mean that the interest rate of that loan can be 5% on one day and then 7% the next? Or is the interest rate set per year? And what determines the amount of the interest rate on a variable APR loan?

 

[hematosis]

So, if a loan as a variable APR that ranges from 5% to 8%, does that mean that the interest rate of that loan can be 5% on one day and then 7% the next? Or is the interest rate set per year? And what determines the amount of the interest rate on a variable APR loan?

It typically doesn't fluctuate that much. This link may help you out. http://www.finaid.org/loans/historicalrates.phtml

 

[jonod1107]

So, if a loan as a variable APR that ranges from 5% to 8%, does that mean that the interest rate of that loan can be 5% on one day and then 7% the next? Or is the interest rate set per year? And what determines the amount of the interest rate on a variable APR loan?

It should state on the loan agreement how often it is calculated. I have seen monthly and quarterly (3 months) and semi-annually (6 months).

 

[FootAndAnkle]

Hey guys,

I just wanted to ask if anyone used private loans in addition to federal loans to cover their school finances. I'm borrowing the max Federal Stafford for the year ($40,500) and then taking out a little bit of Grad PLUS to cover the rest.

Now Stafford Loans aren't that bad from what I can tell (6.8% fixed APR with 1.051% origination fee). I plan on using as much of the Stafford Loans as I can. However, the Grad PLUS loans are much worse (7.9% fixed APR with 4.204% origination fee). Would it be better to find a private loan instead of the Grad PLUS? Sallie Mae offers an alternative to Grad PLUS that doesn't have an origination fee, but I know that there are certain benefits to federal loans, like IBR and loan forgiveness if you work in public service. Does anyone have experience with that?

Thanks for any input.

The fixed interest rates have changed and are now ~5.5% for Stafford and ~6.5% for GradPLUS, so that should make them more favorable for you, as well.

 

[pacpod]

The fixed interest rates have changed and are now ~5.5% for Stafford and ~6.5% for GradPLUS, so that should make them more favorable for you, as well.

Does this apply to graduate loans? I thought this applied to undergraduate loans only. It would be nice if it applied to graduate loans.

 

[FootAndAnkle]

Yes, as long as the loan is disbursed between July 1, 2013 and June 30, 2014.

The following is from the studentaid.ed.gov site:

 

[heybrother]

Does this apply to graduate loans? I thought this applied to undergraduate loans only. It would be nice if it applied to graduate loans.

The legislation affected both graduate and undergraduate loans and tied the rate to some variation of a 10-year treasury + a fixed value. The issuing rate will fluctuate year to year, but the rate on your loan won't be variable - once you borrow the money its set at whatever it was issued at.

I believe the law went into affected on August 9th; unfortunately my disbursement arrived on August 5th! 🙄

 

[bunion123]

The date of signing the promissory note, not the date of disbursement, is the determining factor of your rate.

 

[FootAndAnkle]

The date of signing the promissory note, not the date of disbursement, is the determining factor of your rate.

The 'first date of disbursement' is actually what determines the rate, regardless of the date you signed the master promissory note. You can confirm this with your loan servicer, your school financial aid department, and/or the Dept. of Education (see http://studentaid.ed.gov/types/loans/interest-rates).

If your school classified your Summer '13 loans (for those with summer school) as pertaining to the 2013-2014 school year, however, your 'first date of disbursement' for the 2013-2014 year was most likely before July 1, 2013, in which case your loans are locked in at the old rates of 6.8% and 7.9% for disbursements throughout the entirety of the 2013-2014 year. If you're an incoming student, however, with a 'first date of disbursement' after July 1, or if you attend a school that classified Summer '13 as part of the 2012-2013 school year's disbursements, you get the much more favorable 5.41% and 6.41% rates recently legislated.

Depending on the amount borrowed, the new rate reductions could save some students thousands of dollars in the long run.