Questions about federal loans

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honestabe84
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Questions about federal loans

Postby honestabe84 » Sun May 23, 2010 5:17 pm

Does anyone know how much you can typically barrow from the federal government?

The reason I ask is that for those of us who are taking advantage of IBR, it seems like we should borrow as much as possible, put it in the bank, and then use the excess to make our 10 years of monthly payments. Am I missing something? On the other hand, if you don't want to save it, it still makes sense to barrow the max, because you'll still be making the same monthly payments for 10 years.

Consider the following example:

Person A: Borrows 100k from the federal government and has a 45k salary. MONTHLY PAYMENTS for 10 years = $360
Person B: Borrows 150k from the federal government and has a 45k salary. MONTHLY PAYMENTS for 10 years = $360

Person B clearly got a much better deal that person A. He borrowed 1.5 times as much as Person A, but still has the exact same amount to pay back. Am I missing something or is the federal govt. really this incompetent, and is allowing us to completely exploit this program.
Last edited by honestabe84 on Sun May 23, 2010 5:28 pm, edited 5 times in total.

09042014
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Re: Questions about federal loans

Postby 09042014 » Sun May 23, 2010 5:22 pm

Cost of attendance.

honestabe84
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Re: Questions about federal loans

Postby honestabe84 » Sun May 23, 2010 5:24 pm

Desert Fox wrote:Cost of attendance.


Thanks Fox. Do you know if living expenses (i.e. apartment, food, home appliances) are also included?

09042014
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Re: Questions about federal loans

Postby 09042014 » Sun May 23, 2010 5:30 pm

honestabe84 wrote:
Desert Fox wrote:Cost of attendance.


Thanks Fox. Do you know if living expenses (i.e. apartment, food, home appliances) are also included?


Each school has a set cost of attendance. It's barely enough to live on for 9 months.

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kalvano
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Re: Questions about federal loans

Postby kalvano » Sun May 23, 2010 5:31 pm

honestabe84 wrote:
Desert Fox wrote:Cost of attendance.


Thanks Fox. Do you know if living expenses (i.e. apartment, food, home appliances) are also included?



Included in the COL estimates from the school.

You usually take out a PLUS loan to cover that.

honestabe84
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Re: Questions about federal loans

Postby honestabe84 » Sun May 23, 2010 5:33 pm

kalvano wrote:
honestabe84 wrote:
Desert Fox wrote:Cost of attendance.


Thanks Fox. Do you know if living expenses (i.e. apartment, food, home appliances) are also included?



Included in the COL estimates from the school.

You usually take out a PLUS loan to cover that.


PLUS loan? Is that a federal loan?

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kalvano
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Re: Questions about federal loans

Postby kalvano » Sun May 23, 2010 5:48 pm

You can borrow up to $20,500 in federal Stafford loans. I believe the Grad PLUS loans are privately-funded.

09042014
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Re: Questions about federal loans

Postby 09042014 » Sun May 23, 2010 5:50 pm

kalvano wrote:You can borrow up to $20,500 in federal Stafford loans. I believe the Grad PLUS loans are privately-funded.


You'd be wrong.

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kalvano
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Re: Questions about federal loans

Postby kalvano » Sun May 23, 2010 5:50 pm

Desert Fox wrote:
kalvano wrote:You can borrow up to $20,500 in federal Stafford loans. I believe the Grad PLUS loans are privately-funded.


You'd be wrong.



Are they not? Thought they were.

09042014
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Re: Questions about federal loans

Postby 09042014 » Sun May 23, 2010 5:51 pm

kalvano wrote:
Desert Fox wrote:
kalvano wrote:You can borrow up to $20,500 in federal Stafford loans. I believe the Grad PLUS loans are privately-funded.


You'd be wrong.



Are they not? Thought they were.


They are federal loans.

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kalvano
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Re: Questions about federal loans

Postby kalvano » Sun May 23, 2010 6:18 pm

Huh. Neve paid that much attention, though it doesn't surprise me the Federal government would be that inefficient.

RickyMack
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Re: Questions about federal loans

Postby RickyMack » Tue May 25, 2010 2:49 am

kalvano wrote:Huh. Neve paid that much attention, though it doesn't surprise me the Federal government would be that inefficient.


private banks used to offer Grad PLUS loans in addition to the existence of a federal Grad PLUS loan program. but these private Grad PLUS loans were funded by the government, it was just that the govt allowed the banks to distribute the money themselves and often times the banks would offer these loans at interest rates that were both variable and higher than the Grad PLUS loans offered by the federal govt.

from my understanding, the new health care bill also included a provision that ended this practice so now it would only be the dept of education offering the grad PLUS money (cutting out the middle man that offered crap deals to consumers). because of the fixed interest rate as well as the flexibility in repayment options it was almost universally recommended that students seek federal aid over private loans if possible. so i don't know why you would make the assertion that just because it was run by the federal govt it must be inefficient, or are you referring to your lack of knowledge about Federal Grad PLUS loans being a fault of the government's "inefficiency?"

as it stands you are correct, only 20500 in stafford loans could be borrowed. this is i believe 8500 in subsidized loans and 12000 in unsubsidized loans. you can borrow up to the cost of attendance in federal Grad PLUS loans, so this depends on your school.

grad plus loans are at a 7.9% fixed interest rate, however like the unsubsidized loans interest accrues and must be paid the moment the funds are disbursed. if you choose not to pay during a period of deferment (such as while in school) the owed interest becomes capitalized and added to the balance, creating higher interest payments upon graduation. which brings me to the other point, unlike the subsidized and unsubsidized stafford loans, there is no 6 month grace period upon graduation and payments must be made right after getting your diploma.

as for the OP you are somewhat mistaken about IBR. you're confusing it with the Public Service Loan Forgiveness program. IBR only reduces the amount you need to pay on your loans based upon your income. PSLF will forgive your balance after 10 years if you work in a qualified government position or 501(c)(3) tax exempt non profit organization. the two programs are made to work in conjunction with each other, but if you choose not to work in a public service position your loan will be forgiven under IBR after 25 years rather than 10.

i wouldn't call it a matter of inefficiency, these repayment programs are a method to help people make their loan repayments manageable should they be unable to acquire the salary they hoped for or need. obviously if you're not one of these people you'd be able to finish your repayments within 10 years with the standard repayment plan or earlier which would be a lot more cost efficient on the part of the borrower and would infer you do not qualify to use the IBR in the first place. the PSLF was created to allow individuals to pursue careers in public service which comes with a lower salary and not be crippled by student loans, and extends to careers other than those in the legal field such as medicine or education.

a longer repayment period may be easier to handle payment by payment, but you end up paying a lot more in interest the longer you take to repay the loan. if you can land a public service position, that might be a good strategy, but according to some posts a lot of these positions are being gunned on by t14 grads that didn't get into biglaw. plus these jobs are high stress with lots of burnout even from people who are highly dedicated to the field. so commitment while necessary isn't sufficient. its a 10 year commitment to a much lower salary than private sector firm so it's definitely not an easy out to repaying the loans. but if you can handle it (i'm hoping i'll be able to as well) it could be fruitful.

honestabe84
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Re: Questions about federal loans

Postby honestabe84 » Tue May 25, 2010 6:00 pm

RickyMack wrote:
kalvano wrote:Huh. Neve paid that much attention, though it doesn't surprise me the Federal government would be that inefficient.


private banks used to offer Grad PLUS loans in addition to the existence of a federal Grad PLUS loan program. but these private Grad PLUS loans were funded by the government, it was just that the govt allowed the banks to distribute the money themselves and often times the banks would offer these loans at interest rates that were both variable and higher than the Grad PLUS loans offered by the federal govt.

from my understanding, the new health care bill also included a provision that ended this practice so now it would only be the dept of education offering the grad PLUS money (cutting out the middle man that offered crap deals to consumers). because of the fixed interest rate as well as the flexibility in repayment options it was almost universally recommended that students seek federal aid over private loans if possible. so i don't know why you would make the assertion that just because it was run by the federal govt it must be inefficient, or are you referring to your lack of knowledge about Federal Grad PLUS loans being a fault of the government's "inefficiency?"

as it stands you are correct, only 20500 in stafford loans could be borrowed. this is i believe 8500 in subsidized loans and 12000 in unsubsidized loans. you can borrow up to the cost of attendance in federal Grad PLUS loans, so this depends on your school.

grad plus loans are at a 7.9% fixed interest rate, however like the unsubsidized loans interest accrues and must be paid the moment the funds are disbursed. if you choose not to pay during a period of deferment (such as while in school) the owed interest becomes capitalized and added to the balance, creating higher interest payments upon graduation. which brings me to the other point, unlike the subsidized and unsubsidized stafford loans, there is no 6 month grace period upon graduation and payments must be made right after getting your diploma.



a longer repayment period may be easier to handle payment by payment, but you end up paying a lot more in interest the longer you take to repay the loan. if you can land a public service position, that might be a good strategy, but according to some posts a lot of these positions are being gunned on by t14 grads that didn't get into biglaw. plus these jobs are high stress with lots of burnout even from people who are highly dedicated to the field. so commitment while necessary isn't sufficient. its a 10 year commitment to a much lower salary than private sector firm so it's definitely not an easy out to repaying the loans. but if you can handle it (i'm hoping i'll be able to as well) it could be fruitful.


i wouldn't call it a matter of inefficiency, these repayment programs are a method to help people make their loan repayments manageable should they be unable to acquire the salary they hoped for or need. obviously if you're not one of these people you'd be able to finish your repayments within 10 years with the standard repayment plan or earlier which would be a lot more cost efficient on the part of the borrower and would infer you do not qualify to use the IBR in the first place. the PSLF was created to allow individuals to pursue careers in public service which comes with a lower salary and not be crippled by student loans, and extends to careers other than those in the legal field such as medicine or education.


The reason I said it was inefficient is because it technically allows people to barrow 100k in loans and then only pay back around half of that after 10 years. As a result, what incentive does any law student have to not take out 100k when they may only need 50k? - Their monthly payments and debt after 10 years will be the exact same. So if I was in that position and only need to borrow 50k, I would take out 100k, and then buy a car or put it in the bank. Thus, the tax payers have just given me 50k for doing nothing.

if you can land a public service position, that might be a good strategy, but according to some posts a lot of these positions are being gunned on by t14 grads that didn't get into biglaw.


I have to disagree with you on this. You can't just fail to get into biglaw and expect the public sector to begging for you just because you graduated from the T14. From what I understand, the public sector wants to see commitment. As such, you're going to have a hard time getting a job if you've shown zero interest for the past three years and are just using it as a fall back option. Obviously, if the t14 grad has been interning in public sector, taking clinics, taking public interest classes, volunteering, etc. then he or she will definitely have a leg up.


as for the OP you are somewhat mistaken about IBR. you're confusing it with the Public Service Loan Forgiveness program. IBR only reduces the amount you need to pay on your loans based upon your income. PSLF will forgive your balance after 10 years if you work in a qualified government position or 501(c)(3) tax exempt non profit organization. the two programs are made to work in conjunction with each other......


This is interesting. I thought IBR took care of everything. I guess it doesn't really matter either way, right?

rockstar4488
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Re: Questions about federal loans

Postby rockstar4488 » Tue May 25, 2010 7:15 pm

IBR completely re-writes the rulebook as to when it is a financially sound decision to go to law school.

RickyMack
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Re: Questions about federal loans

Postby RickyMack » Tue May 25, 2010 9:05 pm

honestabe84 wrote:I have to disagree with you on this. You can't just fail to get into biglaw and expect the public sector to begging for you just because you graduated from the T14. From what I understand, the public sector wants to see commitment. As such, you're going to have a hard time getting a job if you've shown zero interest for the past three years and are just using it as a fall back option. Obviously, if the t14 grad has been interning in public sector, taking clinics, taking public interest classes, volunteering, etc. then he or she will definitely have a leg up.


i definitely do agree with you that they want to see commitment more so than just graduating from a t14 school. as i'm sure an employer would be mindful of folks that would jump ship the moment the economy "gets better." i personally don't know the state of the public interest job market right now, but i do remember vanwinkle has chimed in on the subject on the public interest topic that was floating around somewhere. he's a PI focused member going to UVA and has interned with the local public defender's office, as well as doing extensive volunteer work in order to secure that internship with the PD and i think i recall him saying that he was having difficulty looking for employment as well. i think what i was trying to get at even with a flawed premise is that it's going to be difficult securing a public service spot unless you hustle like hell.




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