GradPlus loans vs. Private Loans with Lower Interest Forum

[bhan87]

What are your thoughts on taking out loans from GradPlus vs. a private loan that has a lower interest rate? At what point does the benefits of borrowing only federal loan become negligible in comparison to paying less on interest? Some immediate pros and cons that come to mind:

GradPlus Pros:

Eligible for benefits attached to federal loans (IBR, consolidation, etc)
Locked in interest rate at 7.9%

GradPlus Cons:

You potentially will pay more due to the fairly high interest rate
Not deferrable (I might be mistaken on this point)

Private Pros:

Potentially lower interest rate depending on credit
Deferrable depending on where you borrow from

Private Cons:

No access to benefits of federal loans

[aliarrow]

The only circumstance a private loan should be chosen is if you're going to HYS, are biglaw or bust, and are ineligible for GradPlus. Other than that the safety net that comes with Federal loans is just too significant to be passed up for any money saved on interest.

[bhan87]

The only circumstance a private loan should be chosen is if you're going to HYS, are biglaw or bust, and are ineligible for GradPlus. Other than that the safety net that comes with Federal loans is just too significant to be passed up for any money saved on interest.

Can you elaborate on some of the safety nets that are in place for those that borrow heavily from GradPlus?

[swc65]

how much lower is the interest rate? 5% lower, fixed? I would take that in a heart beat. Also, aren't private loans dischargeable in bankruptcy whereas fed. loans aren't?

[bk1]

The only circumstance a private loan should be chosen is if you're going to HYS, are biglaw or bust, and are ineligible for GradPlus. Other than that the safety net that comes with Federal loans is just too significant to be passed up for any money saved on interest.

Can you elaborate on some of the safety nets that are in place for those that borrow heavily from GradPlus?

http://www.top-law-schools.com/tls-guide-to-lrap.html

http://www.top-law-schools.com/income-b ... ation.html

[aliarrow]

The biggest one is IBR. To elaborate:

-Deferments for periods of unemployment or continued education.
-No required loan payments if you earn less than 150% of the poverty level ($16,500 for a single person with no dependents), 15% of any income earned above that (very manageable).
-If you don't hit biglaw which would allow you to pay off the loans in 10 years, you can go for any public sector job which would allow the loan to be forgiven (tax-free) after 10 years. It doesn't even have to be a legal job or an elusive PI job. It can be a public school teacher (not even a teacher, a janitor is technically a public employee), you can knock out 3 years (maybe more) through the peace corps while not even making any payments, Americorps also counts for public repayment.

Responsibility Disclaimer:
Of course you should attempt to pay back all of the loans and only take on as much debt as you feel you can pay back given your school's employment prospects. However, should you fail, you won't be wallowing in debt for the rest of your life if you take out federal loans.

[aliarrow]

how much lower is the interest rate? 5% lower, fixed? I would take that in a heart beat. Also, aren't private loans dischargeable in bankruptcy whereas fed. loans aren't?

All student loans are not dis-chargeable, even private loans.

[bhan87]

The biggest one is IBR. To elaborate:

-Deferments for periods of unemployment or continued education.
-No required loan payments if you earn less than 150% of the poverty level ($16,500 for a single person with no dependents), 15% of any income earned above that (very manageable).
-If you don't hit biglaw which would allow you to pay off the loans in 10 years, you can go for any public sector job which would allow the loan to be forgiven (tax-free) after 10 years. It doesn't even have to be a legal job or an elusive PI job. It can be a public school teacher (not even a teacher, a janitor is technically a public employee), you can knock out 3 years (maybe more) through the peace corps while not even making any payments, Americorps also counts for public repayment.

Responsibility Disclaimer:
Of course you should attempt to pay back all of the loans and only take on as much debt as you feel you can pay back given your school's employment prospects. However, should you fail, you won't be wallowing in debt for the rest of your life if you take out federal loans.

This post is very helpful, thank you! I wasn't aware that IBR didn't require you to be doing PI law to be eligible, which is actually very comforting because depending on LRAP as a safety net is not a good idea considering how difficult it can be to get a PI gig. So in the absolute worst case scenario, I could enter a national service program (Peacecorps / Americorps) then become a teacher and I will still be okay under IBR?

[aliarrow]

This post is very helpful, thank you! I wasn't aware that IBR didn't require you to be doing PI law to be eligible, which is actually very comforting because depending on LRAP as a safety net is not a good idea considering how difficult it can be to get a PI gig. So in the absolute worst case scenario, I could enter a national service program (Peacecorps / Americorps) then become a teacher and I will still be okay under IBR?

Yes - IBR is for all federal loan borrowers, not law students in particular; therefore the guidelines for the Public Service Forgiveness option applies to a broad spectrum of Public Service jobs and doesn't even take the actual sector (legal vs whatever) into consideration. Here's a good site for more info:
http://ibrinfo.org/what.vp.html#pslf

[The Real Jack McCoy]

In some cases, a school's LRAP will extend to private loans. So the safety net might still be there if you believe in the school's willingness to maintain its LRAP, and the school's LRAP program is superior to IBR. You'd need to check with the specific schools, obviously.

[Renzo]

You'd be crazy not to take federal loans.

If you get a high-paying job, you can and should pay the loans down much sooner than they come due, so the interest rate difference won't matter as much. But, if you don't get a high-paying job, you really, really want the flexibility and forgivability of federal loans.

[Anonymous Loser]

GradPlus Cons:

You potentially will pay more due to the fairly high interest rate
Not deferrable (I might be mistaken on this point)

You are mistaken on this point. Federal educational loans typically have more flexible deferment and forbearance provisions than private educational loans.

The biggest one is IBR. To elaborate:

-Deferments for periods of unemployment or continued education.
-No required loan payments if you earn less than 150% of the poverty level ($16,500 for a single person with no dependents), 15% of any income earned above that (very manageable).
-If you don't hit biglaw which would allow you to pay off the loans in 10 years, you can go for any public sector job which would allow the loan to be forgiven (tax-free) after 10 years. It doesn't even have to be a legal job or an elusive PI job. It can be a public school teacher (not even a teacher, a janitor is technically a public employee), you can knock out 3 years (maybe more) through the peace corps while not even making any payments, Americorps also counts for public repayment.

Responsibility Disclaimer:
Of course you should attempt to pay back all of the loans and only take on as much debt as you feel you can pay back given your school's employment prospects. However, should you fail, you won't be wallowing in debt for the rest of your life if you take out federal loans.

This post is very helpful, thank you! I wasn't aware that IBR didn't require you to be doing PI law to be eligible, which is actually very comforting because depending on LRAP as a safety net is not a good idea considering how difficult it can be to get a PI gig. So in the absolute worst case scenario, I could enter a national service program (Peacecorps / Americorps) then become a teacher and I will still be okay under IBR?

To clarify, the IBR program is available to all borrowers of federal educational loans, regardless of employment status. No matter where they work, those borrowers qualify to have their payments capped at 15% of their discretionary income. It is the loan forgiveness attributes of that program that hinge upon employment in qualifying public interest positions: borrowers working in a broadly defined class of public interest positions are eligible for forgiveness after 10 years, whereas other borrowers are eligible after 25 years.

As the result of recent changes to the IBR program, payments for new borrowers of new loans after July 1, 2014, are capped at 10% of discretionary income, and non-PI forgiveness is available after 20 years.

[Anonymous Loser]

GradPlus Cons:

You potentially will pay more due to the fairly high interest rate


Private Pros:

Potentially lower interest rate depending on credit

Interest capitalization tends to occur more frequently in private educational loans than in federal educational loans. As a result, comparing interest rates doesn't give you a entirely accurate picture of the relative costs of these loans.

[brose]

You are mistaken on this point. Federal educational loans typically have more flexible deferment and forbearance provisions than private educational loans.

I think they meant deferrable interest while in school. On GradPlus, you can't defer interest until you graduate...

[Bumi]

What are your thoughts on taking out loans from GradPlus vs. a private loan that has a lower interest rate?

Do any private educational loans have a fixed rate? I thought they were all variable rate loans.

[Renzo]

You are mistaken on this point. Federal educational loans typically have more flexible deferment and forbearance provisions than private educational loans.

I think they meant deferrable interest while in school. On GradPlus, you can't defer interest until you graduate...

If you mean they're not subsidized, so that interest accrues while you're in school this is true. But you don't have to pay that interest while your in school, they'll just capitalize it into the loan. So in that sense you can "defer" the interest until you graduate.

[brose]

You are mistaken on this point. Federal educational loans typically have more flexible deferment and forbearance provisions than private educational loans.

I think they meant deferrable interest while in school. On GradPlus, you can't defer interest until you graduate...

If you mean they're not subsidized, so that interest accrues while you're in school this is true. But you don't have to pay that interest while your in school, they'll just capitalize it into the loan. So in that sense you can "defer" the interest until you graduate.

Yeah that's what I meant. It's not truly deferring because you pay interest on it anyway - and, almost in a sense, double interest since they capitalize it and then you pay interest on your interest that you didn't pay while in school... schweet.

[Renzo]

You are mistaken on this point. Federal educational loans typically have more flexible deferment and forbearance provisions than private educational loans.

I think they meant deferrable interest while in school. On GradPlus, you can't defer interest until you graduate...

If you mean they're not subsidized, so that interest accrues while you're in school this is true. But you don't have to pay that interest while your in school, they'll just capitalize it into the loan. So in that sense you can "defer" the interest until you graduate.

Yeah that's what I meant. It's not truly deferring because you pay interest on it anyway - and, almost in a sense, double interest since they capitalize it and then you pay interest on your interest that you didn't pay while in school... schweet.

Yeah, but this isn't unique to GradPlus. Unsubsidized stafford loans are the same.

[AreJay711]

If you take out the Gradplus and get a biglaw job you could just consolidate it into a private loan if you think interest rates will stay low durring repayment. It is more risky but you could save yourself some money that way.

[Renzo]

If you take out the Gradplus and get a biglaw job you could just consolidate it into a private loan if you think interest rates will stay low durring repayment. It is more risky but you could save yourself some money that way.

Exactly. Or, you could just pay down the loans substantially your first few years, and then consolidate the remainder once they are to a size you'd feel comfortable that you could pay them even on a more modest post-biglaw salary.

[weber35]

Appreciate the above information, very informative.

I'm also considering the trade-offs between Federal and private loans. Can anyone comment on the origination fees associated with federal loans? From my limited research, I've seen them as high as 4%, which adds to the allure of the private loans. Not only do the private loans I'm considering include no origination fees, but they include a 2% graduation reward and a .25% reduced interest rate following graduation.

Just trying to weigh my options before I sign my life away. With my parents co-signing I can get a prime rate (currently 3.25%) + 1% interest rate (variable, of course).

Thanks for any input.

[Bumi]

With my parents co-signing I can get a prime rate (currently 3.25%) + 1% interest rate (variable, of course).

Thanks for any input.

As long as you're okay with the prime rate going up to 8.25% or higher, by all means go ahead. Financial aid people I've talked to are very discouraging to students thinking of getting private loans.