Anonymous User wrote:
Anonymous User wrote:Three questions:
1. Is the compounding difference for private vs. fed loans? If so, how does a 4.75% fixed rate 10-year DRB loan compare with a 6.5% fixed rate 10-year federal loan?
2. Assuming that DRB and SoFi offer the same interest rates (e.g., 3% for a 5-year variable rate loan), is there any advantage to taking one over the other? DRB uses the 3-month LIBOR while SoFi uses the 1-month LIBOR...so that favors DRB, right? (At least if we are assuming that the LIBOR is likely to rise over the next 5 years?) Any other advantages/disadvantages?
3. Any general feels about when variable makes sense over fixed? It should be a pretty easy calculation for someone who has a guess about when and how high LIBOR will rise. E.g., is variable worth a 1% premium (e.g., a 3% interest rate instead of 4% interest rate) over a 5-year repayment? Specifically, I'm looking at a 1.3% premium over about 2.5 years (I'm planning on paying down the loans more quickly) -- thoughts about how likely it is that LIBOR will rise ~2% over the next 2-3 years? Obviously this is an individual decision based on risk tolerance, but it'd be good to hear from some of the more finance-knowledgeable folks here with guesses about what the LIBOR is likely to do over the next couple years. I know my risk tolerance but don't have a good sense of how much risk variable actually entails in the current economic climate.
1. as far i can tell, the compounding is the same. federal is def. just once a year. i mean you should be able to compare APR apples-apples. the difference comes into effect in favor of federal if you don't pay at least the interest. in that case, the extra interest on a federal interest doesn't count as a new loan i.e. they're not charging you 6.5%, or anything, on that amount each year.
2. again, not totally sure, but conceptually, this shouldn't matter all, and your reasoning is off. the 1 month libor & 3 month libor pretty much move in unison. they're published everyday.
3. nobody can know. the people in the best position to know, the bankers setting the rates, are quoting you rates where they're indifferent between the two. i'm definitely not a proponent of a strong efficient market hypothesis...but trying to time the market on fucking interest rates is probably impossible. and you're not exactly liquid in your position here...to the extent that you probably value the bit of extra cash today more than you will 8 years from now, i'd say just sack up and take the variable. but doing fixed and rooting for the world to burn and inflate away your loans might be more fun.
or you can just play, "do i think this 5.5% unemployment number is real game." Latest jobs report suggested it's kind of bullshit. But it's not conclusive. If you were Yellen, do you think that ALL THIS EMPLOYMENT means there's gonna be inflation? Either way, it's going to be more fun if you pick for yourself