<p>Just wondering - everyone says federal loans are a better deal - to go to the Parent Plus Loan before private, etc, due to lower interest rates.</p>
<p>The Plus Loan is fixed at 6.8%. Perkins is similar, as are unsubsidized Stafford, and starting next year, Stafford subsidized will be 6.8%. There is also a 1% origination fee on federal loans.</p>
<p>I just received a private loan with NO fees at all, with an interest rate of LIBOR + 4.75% with a 25 year repayment term. The current LIBOR is 0.21, so my interest rate is currently roughly 5%. </p>
<p>So how are federal better? I don't see the LIBOR going up to the point that my loan becomes more expensive, it would have to go up to 2.0, a 1000% increase, to be close to the federal loan cost. Am I missing something??</p>
<p>Yes you are missing something, it’s called rate volatility.</p>
<p>LIBOR rates were 4% only 2+ years ago (4+4.75 = 8.75%), and 6% back in '07. If you think you can pay off the private loan quickly it may be a better deal. But you have less risk if your long-term loans are fixed.</p>
<p>I looked at historical LIBOR rates, and I know they can go up and down…but they’ve been sub-1% for the past 3 years, and I plan on paying off my loans rather quickly (within 3-4 years of graduating).</p>
<p>Planning to pay off your loans quickly is one thing. Being in a position to do so is another. There are scads of recent college grads out there who aren’t paying down their loans right now at the rate that they had expected to be able to. Think through your individual financial situation carefully before committing to any kind of loan.</p>
<p>Parent Plus loans are in the PARENT’s names…not the student.</p>
<p>The Stafford and Perkins loan rates which are in STUDENT’s names only have FAR better rates than private loans secured even with a cosigner…and the Stafford and Perkins don’t NEED a cosigner.</p>
<p>Even in nursing…don’t over-extend yourself financially. It’s a gift you will be happy to have when you graduate.</p>
<p>Perkins is 5% not 6.8% and it does not have any origination fees. Also you do not incur any interest on it while you are in school plus a 9 month grace period.</p>
<p>Sub Staffords for the 2011-2012 year are 3.4%. There is a small origination fee - it actually ends up being .5% after the on time repayment incentive (though that will be gone after this year). You incur no interest while you are in school plus a 6 month interest period.</p>
<p>So currently the Perkins and sub Staffords are a better deal than any private loan you will find - not incurring 4 years of interest is a big saving. For other loans a private may be better if you have a good enough credit rating (or a cosigner with a good rating) to get as low a rate as the one you mention and if you pay it off before the rates climb. Not everyone gets that good a rate though.</p>
<p>I see. Well yeah, the subsidized ones are great, especially this year, but they go up to 6.8% again after this year, and UNSUBSIDIZED stafford loans are still at 6.8%, plus it says online there is a 1% origination fee. No interest is great, but that’s only for the first $5,000 or so, so for the remainder ($7,500 unsubsidized) you’re getting 6.8% interest rate with interest during college. That actually seems like a bad rate. I’m thinking it’s like</p>
<ol>
<li>Subsidized Stafford (3.4%, no interest)</li>
<li>Perkins (5%, no interest)</li>
<li>Private Student Loan (varies, mines is LIBOR+ 4.75% with 25 year repayment. If LIBOR goes too high, can’t I just consolidate?)</li>
<li>Unsubsidized Stafford (6.8%, interest)</li>
<li>Parent PLUS Loan (7.9%, interest)</li>
</ol>
<p>So I guess I don’t understand why they always say “exhaust federal aid and loans before applying to a private loan” when it seems that yes, subsidized stafford and perkins are worth it, the Unsubsidized Stafford and Parent PLUS loan seem a little higher than a good private student loan. Plus defaulting on a federal student loan (God forbid) is much much worse - barring you from future government loans, etc.</p>
<p>The vast majority of students do not qualify for any private loans without a cosigner - no credit, no collateral, nothing. Staffords are their only option.</p>
<p>Dark Ice, the federal loans offer a number of advantages that are not available for private loans. For example, the loan forgiveness programs and repayment options (IBR/ICR) are only for federal loans. Not having interest accruing while in school is very attractive as well. Btw, the rate isn’t going on on subsidized loans…there simply will be no subsidized loans after this year.</p>
It is just graduate subsidized loans that are going away after this year. The Undergrad ones are still available.</p>
<p>The interest rate on unsubs for next year is an unknown really - the interests had been set for several years in advance and jumped back up to 6.8% for next year because they had not determined a new rate. Whether they will be 6.8% or not is something we will find out next year.</p>
<p>
Who would you consolidate with? (I usually think of consolidating student loans as being when you consolidate fed loans). If the rate has gone up, you will be unlikely to get a low rate at that time. But if you pay your loans of quickly you can hopefully be rid of them before the rates go up.</p>
<p>It is a good rate. You (or your cosigner) must have good credit. Many people would not get that good a rate.</p>
Are you an independent student? (The Stafford loan limit for freshman dependent students is only $5500 total, though it increases a little for upper years).</p>
<p>Are you taking $12,500 a year in loans? That is a lot of debt, even with a good interest rate.</p>
<p>Simple: the vast majority of students are liberal arts majors for which there are few jobs. OTOH, majors in nursing, engineering and business have an easier time finding a good-paying job at the age of 22, so they can immediately start paying down the debt.</p>
<p>I’ve heard that even some nursing BSN graduates are having difficult times finding jobs, though. So be careful about assuming that you can quickly pay down loans and will have no need for forbearance. Besides, as a nurse with a federal loan there’s a good chance you can get public service forgivenness after 10 years.</p>
<p>Wonder if the public service loan forgiveness will be the next program to get the ax? </p>
<p>Thanks for catching that swimcatsmom…my mousepad is doing random deleting of words today and what I’d meant to say was that the rates on Perkins and Grad subsidized loans aren’t going up, as they’re going away.</p>
<p>Are Perkins going away for sure? I knew there had been rumblings for quite a while. Is it the same timeline as the sub grad loans (i.e. Next school year)</p>
<p>Federal is not better if you have better alternatives. They are just more liberal in lending standards and have a lot of repayment options. They also are more willing to lend out amounts needed for a private education. But, absolutely, if you can get a better deal, go for it.</p>
<p>My own school is really careful about steering people towards the Parent PLUS Loans and Grad PLUS Loans if at all possible, and the reason has less to do with interest (although that’s important) than with approval criteria.</p>
<p>PLUS Loan approvals aren’t dependent on your debt-to-income ratio. As long as they can make a reasonable judgment that your credit risk is good, and as long as you don’t have any ‘adverse credit events’ (bankruptcy, etc.) on your credit history, you will probably be approved as a PLUS Loan borrower. And, as long as you don’t default on your payments, you can probably be approved in future years, since the fact that you already have PLUS Loans isn’t a factor in whether you can get more PLUS Loans.</p>
<p>Borrowers and co-signers on a private loan are assessed much more stringently for creditworthiness by the bank offering the loan than PLUS Loan borrowers are assessed by the DoE. Just about all private lenders now consider debt-to-income ratio a major factor when approving someone as a borrower.</p>
<p>What this means for our kids is that their parents may be able to co-sign a loan for their freshman and sophomore year, and then junior year comes around and suddenly the parents’ debt (they co-signed, so the freshman and sophomore year loans are considered their debt) is so much higher than their income that they can’t get approved to co-sign again. So the kid either needs to find another co-signer, or they can’t afford to come back to school. It’s pretty terrible.</p>
<p>For this reason, we try very hard to steer families towards checking out the PLUS Loans first. Private loans may have lower interest rates, but that doesn’t do you any good if you have to repay them via whatever job you can get without the college degree you couldn’t afford to finish.</p>
<p>choryphee: that is the truth. I helped a family friend apply for Parent Plus for her UGrad fresh a few weeks back. She was deeply in debt, living check-to-check with little take-home cash, making $110k/yr as a nurse. When I helped her login to check her existing govt loans first, I noticed she had put a whole slew of her $60k+ school loans (borrowed over a 14yr period) in Forebearance.</p>
<p>Turns out, she was borrowing 3k for her 18yr son b/c she had borrowed that from HIM over the past 2 years (from summer jobs).</p>
<p>choryphee: Thanks for the info, that’s really terrible. In my case, I’m going to a one year accelerated bachelor’s of nursing program, so since I’ve already been approved for the year, that’s all I need. So approval criteria aside - is my private loan likely a better deal?</p>
<p>jgonz123 - where does your family friend work as a nurse to make $110/k a year?? She either has a ton of experience and works major overtime, lives in a super high cost of living area (CA, NY), a combo of the those two…or she’s an advance practice nurse (APN): nurse practitioner, CRNA, nurse-midwife. Do you happen to know?</p>