Unsubsidized Stafford vs. "Family" Loan?

[Ishboo3000]

My family has offered to loan me money at a 2-3% interest rate so that I won't have to take the unsubsidized Stafford loans. However, I know that they won't be able to lend me the full 160-200K for 4 years. The current plan is that my family loan me as much money as they can. When the private funds run dry, I'll take out some more of the unsubsidized Stafford loans. It sounds like a good plan, but are there any issues I haven't taken into consideration in regards to this plan? Some of my friends have mentioned family drama/tension, but we're really tight, and I don't think that will be an issue. I'm more thinking towards tax stuff/advantages of borrowing money from the government (deferment or something like that). Your inputs are appreciated!!

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[TheBee]

I would think that in order to minimize any tensions with your family, you'll want to be really clear with one another regarding the conditions of the loan. When do you have to pay it back? Starting with graduating from med school, or at the end of residency? How much will you pay once you begin paying them back? Do they have any restrictions for how you spend the money? Such as, for tuition only, and not things like clothes, doctor visits, etc. (That may sound silly, but some people become really involved when they're loaning you money) What can they comfortably afford to loan you, and for how long? They'll need to realize if they suddenly need that money, you might not be able to come up with it.

I'd also be sure to have a promissory note with them. This will allow you to diligently account for the money they're loaning you, and will show them you're taking this seriously. Both you & they should have a copy of each note. You should be able to download a template from the web.

Also, if your family isn't able to loan you enough to cover all your expenses, then try for the subsidized stafford loans first. That way you won't accrue interest while you're in school.

 

[tex05]

Is this a common thing? Why is your family juicing you on the loan?

 

[rgerwin]

My grandma loaned me some money, definitely not everything. We have a written agreement, and she is charging me interest after graduation, so it's like more subsidized loans.

 

[OnlyLiveOnce]

Family members shouldn't be charging each other interest. That's implying that the simply helping someone in your family succeed in life is not enough of a reward. I would imagine that if a relative helps you get through school, you would be very grateful and would want to help them out and watch their backs for the rest of their lives, and that ought to be enough of a reward.

A better idea would be to have a zero-interest loan that you begin repaying immediately in small monthly installments, so that your relatives can start seeing their money return to them immediately. Perhaps your parents could begin paying it back to your relatives on your behalf while you're in school, and then you when you start practicing, you start paying it back in much larger installments.

Just an idea.

 

[Habeed]

Family members SHOULD charge each other interest, and here is why.

Reason 1 : Inflation : due to inflation, a zero percent interest loan is effectively a negative interest rate. Basically, it means the family is paying the person they lent money to borrow the money.

Reason 2 : Alternatives. If the family put that money into the most basic, risk averse investment they would still earn 4-5% interest at least. By choosing to loan the money, they need to get at least that amount of interest.

And finally, your "start paying back immediately" idea is silly. Where is the money coming from to make these payments? The only source of income is other loans. So effectively, the family loans the student money, and then the student has to borrow more money from the family or from the bank to make payments on the loans...

 

[Doctor Bagel]

I would be interested in how financially difficult it would be for your family to make you this loan. If something happens and you can't pay it back, you don't want them to wind up financially ruined. On that note, you should probably also get life insurance for anything they'd be out, and make sure the right people will benefit from the life insurance.

 

[OnlyLiveOnce]

And finally, your "start paying back immediately" idea is silly. Where is the money coming from to make these payments?

You'll notice I said "Perhaps your parents could begin paying it back to your relatives on your behalf while you're in school, and then you when you start practicing, you start paying it back in much larger installments."