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So I have $50000 in private loans from undergrad and due to the excellent credit of my cosigner I have an interest rate of 3.25%. After filling out the FAFSA, receiving my award notification, and doing some research, I've learned that I'm eligible for sub stafford, unsub stafford, and grad-plus federal loans which have interest rates of 6.8%, 6.8%, and 8% respectively. I've read everywhere that private loans should be a last resort and avoided if possible, but if I can get the same interest rate as I did in undergrad from private loans why should I choose borrowing from the government? I feel like I'm missing something and would like some advice on which route to go.

Also, I am not interested in IBR, extended payment-plans, or public-interest forgiveness. I plan on living "modestly" when I start out and paying back my debt, which will likely be around $100K, as quickly as possible (10 years max). With this in mind, is there any benefit to government loans?

anyone?

Yes, someone, anyone - - - I am in a similar boat, and I just have a hard time (why I'm shocked, idk) believing that the government loans could really be a higher interest rate than the private...?

well i'm no expert...but from everything I've read, the only negative about private loans is that they're not eligible for the federal loan forgiveness program for people doing public work. In your case, I don't see why you wouldn't go with the private loans if the interest rate is that much more favorable...

I'm in the same position, but I'm a little worried about signing on with a low interest rate (3-4%) and then having that interest rate increase during the repayment period. Rates have been low for quite some time now and it would be just awful if those rates increased and began to gain capitalizing interest while you're trying to finish school.

If you are absolutely, 100% sure that you will not be entering a public interest field or any non-profit/government agency, then you should probably take out private loans at the lower rate, assuming you still qualify for that great interest rate and don't mind having a co-signer again. The 3-4% interest rate is probably variable and not fixed, so if the Fed raises interest rates, you could potentially get screwed.

The reason so many people take out government backed loans such as Grad Plus loans are:
1) Credit requirements are much less strict and they don't require a co-signer
2) The student may be interested in IBR/loan forgiveness down the road
3) Fixed interest rate: you know for sure what you're getting into
4) The loans can be discharged in the event of severe disability/death without a problem since there is no co-signer

Picking up 100k in private loans then making 45k or less in the legal market sounds like a great way to be. Are these loans even locked into an interest rate or are they variable? I had a loan in at 3% which then went to 9%, and is now back to 5%. Who knows what it will be next year.

Government loans have that IBR insurance.

Loans are variable - Prime plus 0. Even if rates go up, I still have just the prime rate. If I can have the same rate for law school loans would that likely be better than a fixed 6.8%?

How are you ineligible for any of the government loans? Really quite curious....

Also, one benefit to government loans you may not have considered - if at any point in your life you become unemployed or injured to the point where you can't work, MOST private loan companies will NOT allow you to put your loans into forbearance (allowing you to not make payments for a while if you can't afford them) - the government loans allow up the 3 years of forbearance.

I would at least take the subsidized Stafford so the interest's paid while you're in school.

Gov't loans provide far more flexibility in repayment--that's the big advantage. If it takes you a while to find a post law school job, or you ever lose your job, or are temporarily disabled, or take a sabbatical or a low-paying job you love, the gov't won't ruin you; a private lender will.

if you don't plan to work in public interest what do you plan to do? biglaw? why will it take you up to ten years to repay 100k if you are making 160-200k+ a year over ten years?

make sure the interest rate on the private loans is fixed and the bank signs their name in blood.

Anybody really know anything about co-signers? If I have a co-signer and stop paying and they go after my co-signer, will that reflect badly on me? The debt is still being paid so I would assume that it doesn't really drag me down.

NancyBotwin wrote:How are you ineligible for any of the government loans? Really quite curious....

Also, one benefit to government loans you may not have considered - if at any point in your life you become unemployed or injured to the point where you can't work, MOST private loan companies will NOT allow you to put your loans into forbearance (allowing you to not make payments for a while if you can't afford them) - the government loans allow up the 3 years of forbearance.

I said I am eligible for government loans. However, it seems that the prime rate will have to double for private loans to be more expensive than government loans.

Bear in mind that IBR works for non-public interest careers as well. The rules are different (25 years to forgiveness instead of 10 with public interest), but you can still get payments capped at 15% of the difference between your income and the poverty level. So you may not be interested in IBR now, but it may be more interesting at graduation ITE.

for subsidized loans interest does not accrue, so take at those.

do what you want re: the rest

Pleadthe5th wrote:anyone?

What are the deferment/forbearance provisions on the private loans you are considering?

Not being "interested" in the IBR program is admirable, I suppose, but when the firm you are working for lays off whatever practice group you are working for due to lack of business, what are your options with the private loans you are considering?

You are buying the cheapest product available: as a result, your repayment options are quite limited, and you are taking on a far greater amount of risk. Private loans are like those 10,000 mile tires at Les Schwab: yeah, they roll like all the other expensive name brand tires, but if you get a flat, you are on your own.

On the other hand, there is no risk whatsoever to the lender, as even private educational loans are extraordinarily difficult to discharge in bankruptcy. This, of course, is why these loans are available at such low rates, as no matter what happens, you are likely still obligated to make your monthly payment.

Caveat emptor.

It's not just IBR, it's the fact that at any time during the repayment of the loans you can get a temporary deferral or hardship forbearance on a gov't loan. A private lender doesn't care if you get sick or fired, they want their money.

So basically the sense I get is that with a government loan I am paying thousands of dollars more in interest as a sort of "unemployment insurance" in case shit hits the fan with a disability or layoff.

What I don't understand is why some suggest taking the subsidized stafford loan over the private loan and then doing the rest in private loans saying that this is the best move from a strictly financial viewpoint (not looking at IBR and other gv programs). It seems that even with the 3 years of subsidized interest vs. three years of capitalized interest at a lower rate the private loan will still save me almost $2000 worth of interest in the long run because the rate is so low. This is assuming the prime rate will remain low and I guess the $2000 extra can be seen as insurance against the prime rate going too high.

Is it correct though that the subsidized loans are still not a better deal than a prime rate + 0 private loan assuming I remain employed and the prime rate doesn't skyrocket? My math skills aren't great and I just want to make sure this is right so I have all accurate information before I make a decision. Thanks a lot for your help!

IBRE is not the only loan forgiveness plan. Many LRAPs will subsidize you, so if interest rates roicket the LRAP would soften the blow.

Yes, provate loans have interst rate risk, and higher front end fees (that can add up quickly). So it's interest rate risk v higher cost. Roll the dice and pcik your poison.

Pleadthe5th wrote: Is it correct though that the subsidized loans are still not a better deal than a prime rate + 0 private loan assuming I remain employed and the prime rate doesn't skyrocket? My math skills aren't great and I just want to make sure this is right so I have all accurate information before I make a decision. Thanks a lot for your help!

You are correct: if you are perpetually employed in a high-paying private-sector job, never get sick or injured, and the prime rate never again rises above ~6%, then private loans the better option.

I would start with government loans. Then during your second or final year, you can switch to lower prime+0 rate as your employment options firm up. You pay a higher rate earlier on to guard against risk. If you want to take on more risk later on, you always have that option.

That actually sounds like a great idea! Thank you.

ggocat wrote:I would start with government loans. Then during your second or final year, you can switch to lower prime+0 rate as your employment options firm up. You pay a higher rate earlier on to guard against risk. If you want to take on more risk later on, you always have that option.

This would be ok. There is also always the option to take gov't loans, then take a private consolidation loan after graduation once you have a good job and know you'll be able to pay it back.

Variable interest rates common with private educational loans can screw you unless you and your cosigner are careful, very careful.

With the new law now barring banks to manage federal student loan programs, not sure how that is going to affect your ability to get an education loan/interest rates. I'd imagine they'd stay the same to spur up business, but with a decrease in federal loan management, they are likely to increase to bridge the divide.