are stafford's really worth it at 6.8%?!

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
gaucholaw
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are stafford's really worth it at 6.8%?!

Postby gaucholaw » Tue Jan 08, 2013 4:12 pm

even though it's fixed, the rate seems enormous!

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Captain Hammer
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Re: are stafford's really worth it at 6.8%?!

Postby Captain Hammer » Tue Jan 08, 2013 4:17 pm

gaucholaw wrote:even though it's fixed, the rate seems enormous!

The rates are enormous. But taking the maximum possible amount of Stafford is worth it. You know why? Because the alternative is worse.

A graduate student may only borrow up to $20,500 total in Stafford loans (subsidized and unsubsidized) in a given academic year. That means you can only borrow up to $20,500 at 6.8%. Going to law school costs a lot more than $20K, though, so how do you cover the difference? You take out federal loans that are designed to cover the difference between maximum Stafford eligibility and the total cost of attendance of graduate schools.

These loans are called GradPLUS loans. Right now, GradPLUS loans are fixed-rate with an interest rate of 7.9%. You'll notice that's nearly a full point higher than the Stafford loans. And if your total tution+COL expenses are around $60K/year, then you'll be borrowing $40K at 7.9% plus $20K at 6.8%.

That 6.8% doesn't sound so bad now, does it? You'd rather take it than take everything at 7.9%, I imagine.

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Tiago Splitter
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Re: are stafford's really worth it at 6.8%?!

Postby Tiago Splitter » Tue Jan 08, 2013 4:19 pm

To add to the Captain's point, the origination fees on Staffords are 1.5% while GradPlus takes you to the cleaners to the tune of 4%. I'd kill to only have Stafford loans.

gaucholaw
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Re: are stafford's really worth it at 6.8%?!

Postby gaucholaw » Tue Jan 08, 2013 7:36 pm

Thanks for the responses! What are origination fees? Additionally, i read that with the Stafford you can get up to 8500 subsidized, so how do you qualify for that?

cynthiad
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Re: are stafford's really worth it at 6.8%?!

Postby cynthiad » Tue Jan 08, 2013 7:47 pm

What about private loans?

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ScottRiqui
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Re: are stafford's really worth it at 6.8%?!

Postby ScottRiqui » Tue Jan 08, 2013 7:49 pm

gaucholaw wrote:Thanks for the responses! What are origination fees? Additionally, i read that with the Stafford you can get up to 8500 subsidized, so how do you qualify for that?


As of this past July, subsidized Stafford loans are no longer available for graduate and professional students. As for origination fees, they're fees you pay just to start up the loan. As an example, if you get a $100k loan with a 4% origination fee, you'll only actually receive $96k - the other $4k goes to the lender as a fee. (ETA - You still pay back the full $100k plus interest, though.)
Last edited by ScottRiqui on Tue Jan 08, 2013 7:56 pm, edited 1 time in total.

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AllDangle
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Re: are stafford's really worth it at 6.8%?!

Postby AllDangle » Tue Jan 08, 2013 7:54 pm

Not intending to hijack, but after my school receives my FAFSA and aid application do I just apply separately for each of the loan options they say are available to me? Or do I apply through the school and they sort it out?

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Tiago Splitter
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Re: are stafford's really worth it at 6.8%?!

Postby Tiago Splitter » Tue Jan 08, 2013 7:54 pm

cynthiad wrote:What about private loans?

Private loans often require a cosigner. If you can get them, they look like great deals now but most of the ones I've seen are variable rate loans so they could be a lot worse than Stafford/GradPlus by the time you finish paying them down.

AllDangle wrote:Not intending to hijack, but after my school receives my FAFSA and aid application do I just apply separately for each of the loan options they say are available to me? Or do I apply through the school and they sort it out?

School will take care of it.

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dingbat
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Re: are stafford's really worth it at 6.8%?!

Postby dingbat » Tue Jan 08, 2013 7:56 pm

Whether or not a loan is worth taking depends on:
A) what other means of paying for law school (COA, not just tuition) is available for you?
B) what is a reasonable expected outcome for the school you are attending? (this should include your intended goals/preferences)
C) Alternative options (e.g. other career possibilities?)

After that comes some heavy math, usually (somewhat erroneously) simplified as: Don't pay full sticker for anything less than T14, but going to a regional powerhouse at in-state rates or a steep discount (scholarship) is probably ok.

cynthiad
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Re: are stafford's really worth it at 6.8%?!

Postby cynthiad » Tue Jan 08, 2013 8:07 pm

Tiago Splitter wrote:
cynthiad wrote:What about private loans?

Private loans often require a cosigner. If you can get them, they look like great deals now but most of the ones I've seen are variable rate loans so they could be a lot worse than Stafford/GradPlus by the time you finish paying them down.

I certainly wouldn't do variable rates for all my loans, but a 3L with a job offer I would have no problem financing their last year with private variable loans--the rates now are about 2.5%, and if she paid the minimum on all loans except whichever had the highest rate, and paid that one off quickly, then the next highest, the risk would be minimal. Rates aren't going to completely skyrocket in one year.

B90
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Re: are stafford's really worth it at 6.8%?!

Postby B90 » Wed Jan 09, 2013 5:24 am

Also, government loans do not survive death. That means when you die, they don't transfer to your estate. If you are married or have family that depends on you, it is a relief to know they won't have to pay off your loans.

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dingbat
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Re: are stafford's really worth it at 6.8%?!

Postby dingbat » Wed Jan 09, 2013 8:54 am

B90 wrote:Also, government loans do not survive death. That means when you die, they don't transfer to your estate. If you are married or have family that depends on you, it is a relief to know they won't have to pay off your loans.

Actually, government loans are no different from private loans, or any other loans, in that respect. If you are married or have family that depends on you, they will only be on the hook if they co-signed the loan. If you have an estate, the debt can be taken from that. If you do not have an estate and you do not have a co-signer, the loans are discharged.

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Captain Hammer
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Re: are stafford's really worth it at 6.8%?!

Postby Captain Hammer » Wed Jan 09, 2013 12:21 pm

dingbat wrote:Actually, government loans are no different from private loans, or any other loans, in that respect. If you are married or have family that depends on you, they will only be on the hook if they co-signed the loan. If you have an estate, the debt can be taken from that. If you do not have an estate and you do not have a co-signer, the loans are discharged.

Bolded isn't true. Discharge upon death means that the obligation to pay vanishes immediately; your estate will not be liable for your remaining student loans.

Private student loans, unless they have a discharge on death provision, can make claims against your estate. In what I imagine as the typical scenario (someone dies tragically young while still owing a massive amount of debt) the difference can be significant. If you only have federal loans, then whatever else is in your estate survives and gets passed on to your heirs. If you have a private loan with no discharge on death provision, then they'll claim everything in your estate up to the unpaid amount, and your heirs will likely get nothing.

Some private lenders are now offering discharge on death provisions in their student loans, but not all of them. And unlike federal loans, private loans with a co-signer may not discharge upon the student's death; a surviving co-signer can remain obligated beyond the student's death.

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dingbat
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Re: are stafford's really worth it at 6.8%?!

Postby dingbat » Wed Jan 09, 2013 3:10 pm

Captain Hammer wrote:
dingbat wrote:Actually, government loans are no different from private loans, or any other loans, in that respect. If you are married or have family that depends on you, they will only be on the hook if they co-signed the loan. If you have an estate, the debt can be taken from that. If you do not have an estate and you do not have a co-signer, the loans are discharged.

Bolded isn't true. Discharge upon death means that the obligation to pay vanishes immediately; your estate will not be liable for your remaining student loans.

Private student loans, unless they have a discharge on death provision, can make claims against your estate. In what I imagine as the typical scenario (someone dies tragically young while still owing a massive amount of debt) the difference can be significant. If you only have federal loans, then whatever else is in your estate survives and gets passed on to your heirs. If you have a private loan with no discharge on death provision, then they'll claim everything in your estate up to the unpaid amount, and your heirs will likely get nothing.

Some private lenders are now offering discharge on death provisions in their student loans, but not all of them. And unlike federal loans, private loans with a co-signer may not discharge upon the student's death; a surviving co-signer can remain obligated beyond the student's death.

I looked it up again (I figured you were right. I just wanted to educate myself)
Upon death, federal student loans are eligible to be discharged. It is not automatic, but needs to be applied for. This will probably be granted in all cases, because I can't imagine someone having a sufficiently large estate that it would be denied and not yet have paid off their student loans. Two caveats are: 1) executor need to be aware that a discharge can be applied for; 2) student should not be the beneficiary of a life insurance policy on his/her own life (this is never a good idea, anyway)

edit: just to be clear, for all intents and purposes, the debt can be considered dischargeable on debt.

B90
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Re: are stafford's really worth it at 6.8%?!

Postby B90 » Fri Jan 11, 2013 11:52 am

dingbat wrote:
Captain Hammer wrote:
dingbat wrote:Actually, government loans are no different from private loans, or any other loans, in that respect. If you are married or have family that depends on you, they will only be on the hook if they co-signed the loan. If you have an estate, the debt can be taken from that. If you do not have an estate and you do not have a co-signer, the loans are discharged.

Bolded isn't true. Discharge upon death means that the obligation to pay vanishes immediately; your estate will not be liable for your remaining student loans.

Private student loans, unless they have a discharge on death provision, can make claims against your estate. In what I imagine as the typical scenario (someone dies tragically young while still owing a massive amount of debt) the difference can be significant. If you only have federal loans, then whatever else is in your estate survives and gets passed on to your heirs. If you have a private loan with no discharge on death provision, then they'll claim everything in your estate up to the unpaid amount, and your heirs will likely get nothing.

Some private lenders are now offering discharge on death provisions in their student loans, but not all of them. And unlike federal loans, private loans with a co-signer may not discharge upon the student's death; a surviving co-signer can remain obligated beyond the student's death.

I looked it up again (I figured you were right. I just wanted to educate myself)
Upon death, federal student loans are eligible to be discharged. It is not automatic, but needs to be applied for. This will probably be granted in all cases, because I can't imagine someone having a sufficiently large estate that it would be denied and not yet have paid off their student loans. Two caveats are: 1) executor need to be aware that a discharge can be applied for; 2) student should not be the beneficiary of a life insurance policy on his/her own life (this is never a good idea, anyway)

edit: just to be clear, for all intents and purposes, the debt can be considered dischargeable on debt.


Now I am confused. Are private loans dischargable or not? If I take out private loans and die soon after law school graduation, will my heirs be liable or not?

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dingbat
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Re: are stafford's really worth it at 6.8%?!

Postby dingbat » Fri Jan 11, 2013 12:43 pm

B90 wrote:Now I am confused. Are private loans dischargable or not? If I take out private loans and die soon after law school graduation, will my heirs be liable or not?

Let's back up. Your heirs are typically never liable for your loans, but your estate is. What this means is that when you die, everything you own is tallied up and used to pay your debts. If there's anything left, the remainder goes to your heirs.
So, let's say your estate is worth $500,000 and your debt is $200,000, your heirs would get the balance, $300,000. If, however, your estate is only worth $50,000 but your debt is $200,000, the lender gets repaid $50,000 and loses out on the rest (they can't go after your family)
Keep in mind that a co-signer (and possibly a spouse) would still be responsible for the debt if you die.

If a loan is discharged upon death, it means they cannot go after your estate - the obligation is terminated unpaid. So, if your estate is worth $500,000 and your debt is $200,000, but it's discharged, the lender gets nothing and your heirs get $500,000.

So, as you can see, lenders don't want debt to be discharged, but the borrower's heirs do want it discharged. One thing to consider is that it's generally assumed that someone with student loans who is not married is unlikely to have a large estate.

Now, to get to the question at hand. Most private student loans are not discharged upon death, but some lenders have started to do so. Many private loans require a co-signer, so what it means is, if the debt is discharged, the co-signer is not on the hook, but if the debt is not discharged, the co-signer will be required to pay the loan back in full.

Again, I'm assuming (as is everyone else) that you don't have a large estate (because, seriously, if you have enough net worth, why do you still have unpaid student loans?)

B90
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Re: are stafford's really worth it at 6.8%?!

Postby B90 » Fri Jan 11, 2013 2:36 pm

dingbat wrote:
B90 wrote:Now I am confused. Are private loans dischargable or not? If I take out private loans and die soon after law school graduation, will my heirs be liable or not?

Let's back up. Your heirs are typically never liable for your loans, but your estate is. What this means is that when you die, everything you own is tallied up and used to pay your debts. If there's anything left, the remainder goes to your heirs.
So, let's say your estate is worth $500,000 and your debt is $200,000, your heirs would get the balance, $300,000. If, however, your estate is only worth $50,000 but your debt is $200,000, the lender gets repaid $50,000 and loses out on the rest (they can't go after your family)
Keep in mind that a co-signer (and possibly a spouse) would still be responsible for the debt if you die.

If a loan is discharged upon death, it means they cannot go after your estate - the obligation is terminated unpaid. So, if your estate is worth $500,000 and your debt is $200,000, but it's discharged, the lender gets nothing and your heirs get $500,000.

So, as you can see, lenders don't want debt to be discharged, but the borrower's heirs do want it discharged. One thing to consider is that it's generally assumed that someone with student loans who is not married is unlikely to have a large estate.

Now, to get to the question at hand. Most private student loans are not discharged upon death, but some lenders have started to do so. Many private loans require a co-signer, so what it means is, if the debt is discharged, the co-signer is not on the hook, but if the debt is not discharged, the co-signer will be required to pay the loan back in full.

Again, I'm assuming (as is everyone else) that you don't have a large estate (because, seriously, if you have enough net worth, why do you still have unpaid student loans?)

Thank you for that explanation. Your point at the end is definitely valid. It isn't likely that someone would die with significant loans and also high net worth.
I was just thinking about a situation where someone died with an estate worth say 30k. and had private, non-dischargable loans. The way I had heard it explained, it seemed like in that scenario the 30k would go to the lenders instead of surviving family.

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dingbat
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Re: are stafford's really worth it at 6.8%?!

Postby dingbat » Fri Jan 11, 2013 4:46 pm

B90 wrote:It isn't likely that someone would die with significant loans and also high net worth.

Actually it's quite common - but those aren't student loans.




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