Private loan vs. standard student loan

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thatmanheisapoet
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Private loan vs. standard student loan

Postby thatmanheisapoet » Thu May 09, 2013 8:46 am

I'd like to hear some of your thoughts thoughts on the pros/cons of taking a private loan rather than the standard student loan.

A private loan would make the debt burden significantly less stressful and would allow for a lot of leeway, in general. But because I couldn't use any LRAP-like programs, I'm kind of hesitant.

Here's my situation:
-~$170K COA (worst-case) at Michigan, ($60K scholarship + minor contributions + overarching effort to minimize debt)
-Would ask my rather wealthy acquaintances for the loan. Haven't found one, but I am pretty sure I could. I'd propose something like 3% interest and a gentlemanly repayment plan. Maybe an LRAP-like stipulation?
-Right now, I think it'd be cool to do biglaw somewhere (not sure how I'll feel in three years though). I have a lot of decent work experience, so, provided my grades are median-ish, I think I could land it somewhere. I know me, though, I don't really get off on the corporate stuff and don't really care about making a lot of money. So, one day I will definitely head towards government/public-sector.

Thoughts?

I kind of think, since my debt will be still quite large (though not a Columbia $300K) it'd almost be better to take a official loan so I could profit from Michigan's insane LRAP. On the whole, I'm pretty ignorant about these sorts of issues, so I don't want to make this decision without getting some guidance.

zoomzoom88
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Re: Private loan vs. standard student loan

Postby zoomzoom88 » Thu May 09, 2013 8:52 am

from an outsiders perspective if you have family willing to loan you over 100k at 3% interest it seems like a win win. Bond yeilds are 1.5 for ten years so they are making a much better return on a low risk investment at 3% interest. You would also have 3% vs the 7% associated to stafford londs. Now I think the tricky part is that you're borrowing from family and that in and of itself has potential for conflict.

rad lulz
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Re: Private loan vs. standard student loan

Postby rad lulz » Thu May 09, 2013 9:14 am

,
Last edited by rad lulz on Thu Sep 22, 2016 7:14 am, edited 1 time in total.

zoomzoom88
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Re: Private loan vs. standard student loan

Postby zoomzoom88 » Thu May 09, 2013 9:44 am

rad lulz wrote:
zoomzoom88 wrote:from an outsiders perspective if you have family willing to loan you over 100k at 3% interest it seems like a win win. Bond yeilds are 1.5 for ten years so they are making a much better return on a low risk investment at 3% interest. You would also have 3% vs the 7% associated to stafford londs. Now I think the tricky part is that you're borrowing from family and that in and of itself has potential for conflict.

$170k on some dude who doesn't seem to want biglaw very much seems like a bad investment. Shit if he can even get big law.



oh absolutely but thats a completely different discussion than if the loan from a family member makes sense financially. I say this because it sounds like he is already set on taking out ~200k either way, its just a matter of how. And for him, if he takes the loan for family he won't have a collection agency breathing down his back if he's late, it won't effect his credit, and there is little way to hold him responsible unless the agreement is explicitly articulated in a contract.

But shoutout to the family members who are willing to loan 200k without a way to enforce repayment.

thatmanheisapoet
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Re: Private loan vs. standard student loan

Postby thatmanheisapoet » Thu May 09, 2013 10:20 am

zoomzoom88 wrote:
rad lulz wrote:
zoomzoom88 wrote:from an outsiders perspective if you have family willing to loan you over 100k at 3% interest it seems like a win win. Bond yeilds are 1.5 for ten years so they are making a much better return on a low risk investment at 3% interest. You would also have 3% vs the 7% associated to stafford londs. Now I think the tricky part is that you're borrowing from family and that in and of itself has potential for conflict.

$170k on some dude who doesn't seem to want biglaw very much seems like a bad investment. Shit if he can even get big law.



oh absolutely but thats a completely different discussion than if the loan from a family member makes sense financially. I say this because it sounds like he is already set on taking out ~200k either way, its just a matter of how. And for him, if he takes the loan for family he won't have a collection agency breathing down his back if he's late, it won't effect his credit, and there is little way to hold him responsible unless the agreement is explicitly articulated in a contract.

But shoutout to the family members who are willing to loan 200k without a way to enforce repayment.


It's $170K max. This does not include any summer employment, any supplemental scholarships I may be awarded, Christmas/birthday money :D , etc.

If Michigan's COA stays around 70K, with my 60K scholarship, that puts me at drawing out ~150K (assuming here a slight increase in their COA and also my minor contributions). 170K is worst-case scenario and also assuming a 6% interest rate. Could happen, but it should be much lower than $170K.

If I get the private loan, that interest rate would be 3/4/5%. Then you have to factor in a reasonable amount of contributions I can make from employment and any money I can save here and there. That'll leave me at $150K debt at graduation I estimate. And I think this is a rather conservative. $50K a year at 4% interest only comes to about $163K. I can save/contribute 13K easy

I'm perfectly cool living like a student for the rest of life. So, even under worst-case circumstances with like a 60K starting salary, I can pay back $150K in what, 10 years? If I have a 4% loan, $6K in interest a year. I can pay at least $10K more a year on the loan ($16K total). Factor in salary bumps, working SOs.

I know things are different now as a 20 something, but I live on $1500 a month and I really am perfectly content. Don't see that ever changing. I can get a decent apmt, eat/drink well, travel once/twice a year, on $30K in disposable income quite easy.

But that's where my hesitancy comes in. Would it not be easier to just rely on Michigan's LRAP in this scenario? If I wanted a higher-paying job, the private loan would win here easily. I could pay off $170K in like three years with a biglaw salary. But Michigan's LRAP is bomb, so with this somewhat manageable amount of debt, I could have a lot of flexibility at graduation I think with the standard student loan as well

rwhyAn
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Re: Private loan vs. standard student loan

Postby rwhyAn » Thu May 09, 2013 10:41 am

I know things are different now as a 20 something, but I live on $1500 a month and I really am perfectly content. Don't see that ever changing. I can get a decent apmt, eat/drink well, travel once/twice a year, on $30K in disposable income quite easy.


If you ever want to have a girlfriend or wife, that $1500 isn't going to cut it because 1) they're costly and 2) most girls don't want to date/marry a guy that is living like a college student. Plus, if you ever want to have kids, you might as well forget about it. Trust me, things will change. Eventually you'll want some of the finer things in life.

zoomzoom88
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Re: Private loan vs. standard student loan

Postby zoomzoom88 » Thu May 09, 2013 10:51 am

rwhyAn wrote:
I know things are different now as a 20 something, but I live on $1500 a month and I really am perfectly content. Don't see that ever changing. I can get a decent apmt, eat/drink well, travel once/twice a year, on $30K in disposable income quite easy.


If you ever want to have a girlfriend or wife, that $1500 isn't going to cut it because 1) they're costly and 2) most girls don't want to date/marry a guy that is living like a college student. Plus, if you ever want to have kids, you might as well forget about it. Trust me, things will change. Eventually you'll want some of the finer things in life.



this. at 20 it seems fine but i am positive that by 24 you're going to be saying "fuck this shit living like a broke college kid when I am working towards a JD". Living off of spaghettios and looking for cheap drink deals gets old fast.

zoomzoom88
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Re: Private loan vs. standard student loan

Postby zoomzoom88 » Thu May 09, 2013 10:52 am

i understand where you are coming from -- I really do. I am taking out about 60k in loans to finance my edu/ living costs, but its important to be realistic about it.

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jrthor10
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Re: Private loan vs. standard student loan

Postby jrthor10 » Thu May 09, 2013 11:03 am

I am also going to Michigan and had a threat in this same forward covering these act same issues. Check it out, but also keep in mind:

--I doubt you'll get the interest rate you think you'll get. I actually applied to Discover and got quoted a 5.25 starting variable. I thought I would get closer to 4. I am young, but my credit is good...

--On the flipside, the 2% graduation bonus discover offers is a sound deal. Don't forget about that when comparing it to other pvt loan companies.

--Finally, no one has yet mentioned the 4% origination fee associated with federal loans--woof!

thatmanheisapoet
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Re: Private loan vs. standard student loan

Postby thatmanheisapoet » Fri May 10, 2013 6:12 am

jrthor10 wrote:....I actually applied to Discover and got quoted a 5.25 starting variable. I thought I would get closer to 4. I am young, but my credit is good...


Did you catch that I'd be getting the loan from an acquaintance? If they'd be down to do it, they would give me a good interest rate, like 3/4%. I would take out a federal loan before going through a bank.

zoomzoom88 wrote:....Living off of spaghettios and looking for cheap drink deals gets old fast.


I feel you here. I know I am going to need a slightly better lifestyle one day. But in the scenario I gave above, $60K salary paying off $16K a year, that still leaves me with what, like $35K? $3000 a month is a lot. And that's just at the beginning. Plus, my SO will work I'm sure. I'll never demand a really luxurious lifestyle, so I think things will work out just fine. I know I'm writing off a huge possible issue here, but I think the chances are remote enough here that I don't want it to play a huge factor in my decision.

-

Going more back to the core issue here. In the event that I do not want/do not land biglaw, would it be better to have to pay back the federal loan or the private loan? Private loan wouldn't have an LRAP, and Michigan's LRAP is bomb. So, even though the federal loan would be more expensive, does the safety net it provides make it the better option? For example, if I take a $45K a year job or under, Michigan pays everything. If I take a $65K job, I only have to pay like $9K or something. Sure, I'll end up paying back more money, but I can take a low-paying job and it won't cripple me. The private loan could (see discussion above).




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