Which loans did you guys take out? What's better fixed or variable?

[ayyntee]

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Hi,

I am in the process of doing my loan applications for school, and was wondering which option is best. Taking out a variable interest rate loan at 3.25% with deferred payment or taking out a fixed interest rate at 6.75% also deferred payment. I know the variable rate is a lot lower but do you guys think it will be higher in the long run? I also have options to do fixed payments while in school. Any suggestions would be great. I am just wondering which option you guys chose when taking out loans, and what is best for me. Thanks.

 

[tb1065]

Hi,

I am in the process of doing my loan applications for school, and was wondering which option is best. Taking out a variable interest rate loan at 3.25% with deferred payment or taking out a fixed interest rate at 6.75% also deferred payment. I know the variable rate is a lot lower but do you guys think it will be higher in the long run? I also have options to do fixed payments while in school. Any suggestions would be great. I am just wondering which option you guys chose when taking out loans, and what is best for me. Thanks.

Try to see if they will disclose a cap on the variable rate (like it will never go above 12%) if there is no cap, and interest rates rise you could find yourself in trouble. Although the fixed rate is higher than the variable today, you know it will never go up. I would plug those rates into a loan repayment calculator and see what your monthly payment would look like. Also check out terms and conditions of both loans, can you pay extra on the principle without any penalties, do you have different amortization options for the fixed loan ( 10 years, 15 years, 30 years).

 

[easb]

I chose the fixed rate. The variable one sounds like gambling to me, so I have no desire to do that. Just personal preference: I want everything to be clear and to know what to expect.

 

[portlandpt]

Almost everyone does fixed. Direct and grad plus are the two loans we get from the gov.
DEFINITELY talk to your financial aid adviser about loan questions.

 

[VapidSlug]

I chose fixed as I am not a gambler--nor am I confident about the markets (imagine that). At least with the fixed you know exactly what you will be paying. My variable loan would have been capped at 18%. While it is unlikely that it would go that high, if it did I doubt I would ever be able to repay it in my lifetime. The "variable is cheaper" mentality is why so many people lost their homes a few years back.

 

[ayyntee]

Seems like everyone went with the fixed interest. Is there anybody out there who went with the variable interest and can explain why they did so?

 

[starrsgirl]

I'm possibly considering it! I just finished my FAFSA so I'm behind the power curve (I start this fall). But if I can significantly reduce the interest that's a win for me. I'm in a different setup than some. My husband works and I'm using $ from a lot of different sources (gi bill and my retirement) and trying to keep debt way down even at a crazy expensive private school. We will drain a lot of our cash savings first to push off loans as long as possible....hopefully won't need to take any until 1/2 through school. When we take loans, we will be paying the interest right away (so there's the first benefit to having a lower interest). We don't plan to defer at all once I graduate either. Also, when I start working, we will plan to put 100% of my salary against the debt to pay it off as quick as possible. So in that way, because the interest will not be stretched out over many years the risks are less that it will significantly vary. That said, it's still a risk. So if it goes sky high, we would look to quickly take out some private loans to pay off the school loans. But again, we have enough credit history and some assets to borrow against.