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Hello All,

I am a 1L starting this fall at Michigan and I am trying to better understand the advantages and disadvantages of private loans vs. grad PLUS loans. Michigan's website has some pretty good resources, but

I called their office and the person I spoke to wasn't overwhelmingly helpful...
The big differences, as I understand them, are that Grad PLUS loans have a fixed interest rate of 7.9% whereas pvt. loans can vary and also grad PLUS loans are eligible for Michigan (and others, i assume) loan repayment program whereas private loans are not.

I asked the Michigan rep. if students split their loans (i.e. some for grad plus some for private) and she said no, but she couldn't really give me a good reason as to why.

I have been out of college for 3 years and my credit is pretty solid, so I think I would definitely be able to get an initial lower interest rate below the 7.9% that is offered by grad plus. While I am hoping to go into Big Law, at least for a bit, I obviously cannot bank on that happening. In addition, while my parents are giving me little direct support in law school, I do know that if I were to encounter financial difficulties, they have the means to help me out. I am looking to borrow, after stafford loans and merit scholarship, a little less than $20,000 a year.

Can anyone give me some advice on this?

Thanks

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Don't forget that PLUS loans have something like a 4% origination fee.

Regulus wrote:lol... if you're only looking at a CoA of ~$60k for 3 years, don't sweat it and go with the Federal Loans. You should be able to service that kind of debt even if you don't get biglaw. Also, there are loans out there with lower fixed interest rates. Read this thread in its entirety to get a better idea of what's out there.

More like 120K. He's only talking about the amount he'd take out in Grad PLUS.

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Elston Gunn wrote:

Regulus wrote:lol... if you're only looking at a CoA of ~$60k for 3 years, don't sweat it and go with the Federal Loans. You should be able to service that kind of debt even if you don't get biglaw. Also, there are loans out there with lower fixed interest rates. Read this thread in its entirety to get a better idea of what's out there.

More like 120K. He's only talking about the amount he'd take out in Grad PLUS.

Correct. I am looking at about 120k in debt. If there is a 4% origination fee and such a high interest rate, while do more people not take out a mixture? I still think I'll go mostly with Grad PLUS loans, but if I can get a lower, even if it is varied, interest rate, I am not sure why I wouldn't take that for 10-20k....

jrthor10 wrote:

Elston Gunn wrote:

Regulus wrote:lol... if you're only looking at a CoA of ~$60k for 3 years, don't sweat it and go with the Federal Loans. You should be able to service that kind of debt even if you don't get biglaw. Also, there are loans out there with lower fixed interest rates. Read this thread in its entirety to get a better idea of what's out there.

More like 120K. He's only talking about the amount he'd take out in Grad PLUS.

Correct. I am looking at about 120k in debt. If there is a 4% origination fee and such a high interest rate, while do more people not take out a mixture? I still think I'll go mostly with Grad PLUS loans, but if I can get a lower, even if it is varied, interest rate, I am not sure why I wouldn't take that for 10-20k....

Most people aren't comfortable without the worst-case-scenario life preserver that IBR/PAYE/LRAP/PSLF are. Private loans are dischargeable in bankruptcy; that's their version of the life preserver (Fed loans are not).

Also, Fed loans are super easy to apply for and get.

Thanks to PSLF/LRAP, if you think there's a reasonable possibility that you end up doing public interest (including government), not doing Fed loans is silly, IMO. If you are absolutely biglaw or bust, then consider private loans.

Even if I am not Big Law or Bust, I am still having trouble understanding why discover's student loans https://www.discover.com/student-loans/ ... loans.html wouldn't be a great option for at least part of my debt.

0% origination fee and, assuming my good credit shines through, a varibale interest rate that is still likely to be below the 7.9% that Graduate PLUS loans have.

I assume Graduate PLUS loans do not have anything equivalent to the graduation or auto debit rewards?

Thoughts?

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I'm interested in this topic in case I end up in law school this fall.

My understanding is that when you take out GradPlus, you technically borrow principle+interest rate 7.9%+disbursement rate 4.2% each year. For example if I borrow $10k at the beginning of 1L, I got $11,243 (2L fall)--> $12,641 (3L fall) --> $14,214.

If I go private with a fixed interest 7%, no disbursement rate and 6 mo. grace period, I got $10,700 (2L fall)--> $11,449 (3L fall) --> $12,250.
So let's say I go private for 10k only for 1L year and borrow GradPlus for 2L and 3L for the sake of IBR or whatever eligibility in case I fail at life. I would still come out with 2k less.

Even if I happen to graduate with no real job, I'm pretty sure that this 10k private loan will only make me pay a hundred dollars or less per month. Also the 6 month grace period allows me to find a part time job at Walmart or doc review so at least I will be able to get by with that payment and IBR. God, hate to be so pessimistic there, but it's a slim possibility.

To a unemployed person, 2k is a lot of money and I think it's worth the extra hassle of going partially private. But obviously I'm no good at finance and know little about borrowing. I also know very little about how things capitalize (I always pay my credit card in full so never had to worry about interest) so if anyone could elaborate on that I'd appreciate it.

jad0re wrote:I'm interested in this topic in case I end up in law school this fall.

My understanding is that when you take out GradPlus, you technically borrow principle+interest rate 7.9%+disbursement rate 4.2% each year. For example if I borrow $10k at the beginning of 1L, I got $11,243 (2L fall)--> $12,641 (3L fall) --> $14,214.

If I go private with a fixed interest 7%, no disbursement rate and 6 mo. grace period, I got $10,700 (2L fall)--> $11,449 (3L fall) --> $12,250.
So let's say I go private for 10k only for 1L year and borrow GradPlus for 2L and 3L for the sake of IBR or whatever eligibility in case I fail at life. I would still come out with 2k less.

Even if I happen to graduate with no real job, I'm pretty sure that this 10k private loan will only make me pay a hundred dollars or less per month. Also the 6 month grace period allows me to find a part time job at Walmart or doc review so at least I will be able to get by with that payment and IBR. God, hate to be so pessimistic there, but it's a slim possibility.

To a unemployed person, 2k is a lot of money and I think it's worth the extra hassle of going partially private. But obviously I'm no good at finance and know little about borrowing. I also know very little about how things capitalize (I always pay my credit card in full so never had to worry about interest) so if anyone could elaborate on that I'd appreciate it.

For starters, you ain't gonna borrow $10k. You're going to borrow more like $100,000, and the payments aren't going to be $100/mo on it. A private loan is probably not going to have the flexible payment schedules where you can choose 10 year ($1200/mo) or 25 years ($800/mo) at will, and it certainly won't have IBR capping your monthly payment at a certain percentage of your income above the poverty line, allowing you to keep up with your minimum payments while you still live a decent life (and ideally work towards finding a higher-paying job to get off IBR).

There are cases where each makes sense, but I feel like too many people just see the lower interest rate and insist that private loans are always better, ignoring the other perfectly valid factors.

rinkrat19 wrote:

jad0re wrote:I'm interested in this topic in case I end up in law school this fall.

My understanding is that when you take out GradPlus, you technically borrow principle+interest rate 7.9%+disbursement rate 4.2% each year. For example if I borrow $10k at the beginning of 1L, I got $11,243 (2L fall)--> $12,641 (3L fall) --> $14,214.

If I go private with a fixed interest 7%, no disbursement rate and 6 mo. grace period, I got $10,700 (2L fall)--> $11,449 (3L fall) --> $12,250.
So let's say I go private for 10k only for 1L year and borrow GradPlus for 2L and 3L for the sake of IBR or whatever eligibility in case I fail at life. I would still come out with 2k less.

Even if I happen to graduate with no real job, I'm pretty sure that this 10k private loan will only make me pay a hundred dollars or less per month. Also the 6 month grace period allows me to find a part time job at Walmart or doc review so at least I will be able to get by with that payment and IBR. God, hate to be so pessimistic there, but it's a slim possibility.

To a unemployed person, 2k is a lot of money and I think it's worth the extra hassle of going partially private. But obviously I'm no good at finance and know little about borrowing. I also know very little about how things capitalize (I always pay my credit card in full so never had to worry about interest) so if anyone could elaborate on that I'd appreciate it.

For starters, you ain't gonna borrow $10k. You're going to borrow more like $100,000, and the payments aren't going to be $100/mo on it. A private loan is probably not going to have the flexible payment schedules where you can choose 10 year ($1200/mo) or 25 years ($800/mo) at will, and it certainly won't have IBR capping your monthly payment at a certain percentage of your income above the poverty line.

There are cases where each makes sense, but I feel like too many people just see the lower interest rate and insist that private loans are always better, ignoring the other perfectly valid factors.

Your snark is obviously based on an assumption that I would have to borrow 100,000 dollars. I also don't see why you are talking about a 10/25 yr payment plan for a 10k when I strongly prefer paying down my debt as quickly as possible.

jad0re wrote:

rinkrat19 wrote:

jad0re wrote:I'm interested in this topic in case I end up in law school this fall.

My understanding is that when you take out GradPlus, you technically borrow principle+interest rate 7.9%+disbursement rate 4.2% each year. For example if I borrow $10k at the beginning of 1L, I got $11,243 (2L fall)--> $12,641 (3L fall) --> $14,214.

If I go private with a fixed interest 7%, no disbursement rate and 6 mo. grace period, I got $10,700 (2L fall)--> $11,449 (3L fall) --> $12,250.
So let's say I go private for 10k only for 1L year and borrow GradPlus for 2L and 3L for the sake of IBR or whatever eligibility in case I fail at life. I would still come out with 2k less.

Even if I happen to graduate with no real job, I'm pretty sure that this 10k private loan will only make me pay a hundred dollars or less per month. Also the 6 month grace period allows me to find a part time job at Walmart or doc review so at least I will be able to get by with that payment and IBR. God, hate to be so pessimistic there, but it's a slim possibility.

To a unemployed person, 2k is a lot of money and I think it's worth the extra hassle of going partially private. But obviously I'm no good at finance and know little about borrowing. I also know very little about how things capitalize (I always pay my credit card in full so never had to worry about interest) so if anyone could elaborate on that I'd appreciate it.

For starters, you ain't gonna borrow $10k. You're going to borrow more like $100,000, and the payments aren't going to be $100/mo on it. A private loan is probably not going to have the flexible payment schedules where you can choose 10 year ($1200/mo) or 25 years ($800/mo) at will, and it certainly won't have IBR capping your monthly payment at a certain percentage of your income above the poverty line.

There are cases where each makes sense, but I feel like too many people just see the lower interest rate and insist that private loans are always better, ignoring the other perfectly valid factors.

Your snark is obviously based on an assumption that I would have to borrow 100,000 dollars. I also don't see why you are talking about a 10/25 yr payment plan for a 10k when I strongly prefer paying down my debt as quickly as possible.

Fucking generalities, how do they work?
Look at the average debt of grads from each school. It's not $10k. Maybe you're the lucky person who takes out the smallest loan ever, but that doesn't apply to most people. I'm talking in generalities here, because as I said, there are cases where private loans make the most sense and cases where Fed loans are the best choice. I'm not going to analyze your special case because A)I frankly don't care that much and B)I've got exams and ain't got time for that shit.

Besides, it wasn't clear that your 10k was a real situation and not just an example number.

You don't want to take private loans since if you strike out, you want to be able to cop dat PAYE.

Most private loans are not easily discharged via bankruptcy either after the 2005 laws.

Nelson wrote:Most private loans are not easily discharged via bankruptcy either after the 2005 laws.

If by "not easily" you mean " almost never," I agree. I don't know where the other posters are getting the idea that private educational loans are a somehow more easily discharged than federal educational loans: they are both "qualified educational loans," and are not dischargeable absent undue hardship.

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Regulus wrote:

Anonymous Loser wrote:

Nelson wrote:Most private loans are not easily discharged via bankruptcy either after the 2005 laws.

If by "not easily" you mean " almost never," I agree. I don't know where the other posters are getting the idea that private educational loans are a somehow more easily discharged than federal educational loans: they are both "qualified educational loans," and are not dischargeable absent undue hardship.

I am talking about non-Federal loans in general... like home equity loans and other lines of credit. There are other options that can be used to pay for tuition that aren't technically "educational loans."

What loans are you talking about? You aren't going to get a personal line of credit nearly big enough to pay for law school. If you had enough home equity to take out a loan of sufficient size, you probably have enough liquid assets to pay cash.

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Regulus wrote:I am talking about non-Federal loans in general... like home equity loans and other lines of credit. There are other options that can be used to pay for tuition that aren't technically "educational loans."

I understand what you are getting at (I just paid off my Grad PLUS loans with a HELOC*), but the federal v. private terminology doesn't make a lot of sense outside the context of educational loans. If you intended your pro-con list above to include alternative funding sources, it certainly wasn't apparent to me.




*

Nelson wrote:If you had enough home equity to take out a loan of sufficient size, you probably have enough liquid assets to pay cash.

I took out a $90,000 HELOC. I did not have anywhere near $90,000 in cash.

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Thanks to everyone who has commented on this thread so far. I have a bit more information/change in my situation, so I am hoping someone can offer some advice. Note, I am being pretty specific here about my situation so 1) let's not generalize and 2) please don't quote me.

After talking it over with my parents they have made me a pretty solid deal. As before, I am looking at a bit over 100k in total debt. My parents suggest I take the lower variable interest rate that is offered by private lenders, Discover most notably. If the interest rate hikes up above 6%, my parents have said they are willing to pay off the loan for me, so that I don't have to take on the high interest, and then I will just pay them back as if they are my lender.

As I mentioned before, my goal is big law, at least for 3-5 years. After that, my eventual goal is to get into public policy, most likely as a candidate for office.

My question is, for someone far smarter and/or better informed than myself, does it make sense under any scenario below to either 1) only get GradPLUS loans still or 2) get a mix of gradPLUS and private loans. I see my three possible outcomes as:

1. Big or Mid Law ($85,000+) for 3-5 years and then running for office/doing gov’t work.: I see this as the most likely scenario, but obviously by no means guaranteed. Under this scenario, I feel like there is potentially some benefit to paying off my private loans first and then having some GRAD PLUS loans that I pay off at normal pace. This way, if necessary, I can use IBR after I am finished with Biglaw for my remaining loans.

2. Strike out at big law/become a prosecutor, find law work for $50,000-70,000: I think I want Biglaw, but I’ve also not been to law school yet. There is a chance, I’d put it at 35% that I either can’t get a firm job or I don’t want one by the time I am a 2L. Under this scenario, would it not be better to have at least some grad PLUS loans for IBR? Is it better to have all Grad PLUS loans, even if I have the lower interest rate guaranteed by my parents?

3. Big or Mid Law forever: Not my preferred outcome, but it might happen. I see no reason if this were to be the outcome that having Grad PLUS loans would be advantageous whatsoever.
Given the above information, and scenarios 1 or 2 being most likely, what type of loans should I go for?

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Regulus--Thanks for the info. I am going to suggest this to my parents, but I doubt it's going to be a go. Opening up a home equity line of credit under their name is a bit more than I think they are willing to help me, but I'll see.

Given that, is there any reason to split between pvt and gov't loans in the scenarios I described above? Or are you thinking that the lower interest rates for the pvt loans would more then compensate for the potential benefits gradPLUS loans would offer me if I ended up making under 90k?

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tagging this. Thanks.