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2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)?

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2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 14 Apr 2012, 07:46
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Hey guys,
I just got approved for LIBOR + 2% loan (= 2.25%) from Sallie Mae. I'm wondering if it makes sense to turn down the Stafford Loans for this, as the interest rate is just so low. I realize the risk is it could go up at any time, but since the repayment terms on both loans are only 10 years, it's a safe bet that over the course of the 10 years, the private loan will still be cheaper for me even at some point it does happen to get up above 6.8%.

Am I missing something here or should I just go all private loans and not take the $20,500 from Stafford?
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 15 Apr 2012, 21:29
randomguy2012 wrote:
you will never get a private loan for less than the stafford...I would stick with the stafford..


This guy doesn't know what hes talking about.


I'm running at Libor + 2 right now. Unless you think rates are going to pop 5% in the next couple years, take the Sallie Mae one (same one I have).

The smart thing to do is take some Sallie Mae, and hedge it (sorta) with some sallie mae. So if rates pop crazy, try to paydown your var rate first. if not, then focus on the ridiculously high govt loan.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 17 Apr 2012, 21:16
With fiscal policy the way it has been the last few years I think its safe to say interest rates with be low for another 5-10 years.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 19 Apr 2012, 18:20
I think I'm going to take the $20,500 from Stafford and the remaining amount from a private loan.

That will give me at least some cushion if rates shift higher than 5% in the next 10 years.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 21 Apr 2012, 05:16
Private loans are a lot like rolling the dice, it would be a good bet to take a portion at a very low rate but I would not want 100k+ worth of debt with a floating interest rate. You could go from 2.5% to 10% in the blink of an eye. I did federal but post grad did take a portion and paid them off with a home equity line of credit with a much lower rate. Due to income limits we can't write off student loan interest but can write off home loan interest, so there were tax benefits in addition to having a very low interest rate on about 75k worth of debt.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 21 Apr 2012, 08:00
From my understanding private loans are based on personal credit and Stafford loans are not, correct?

So if you've messed up your credit, Stafford may be the only option.

In general though, the private at 2.25% is much better. Even if the rate does go up to 10% 4yrs down the line, you would've still paid 2.25% for 4yrs and 10% for 6yrs, for an average of 6.9%. Even if the rates gradually go up by 1% every year up til 10%, then you've got 2.25, 3.25, 4.25, etc. and the average rate for 10yrs (if it maxes out at 10%) will be 6.6%...still better than Stafford.

In fact, considering that your loan balance (& thus the bal you pay interest on) will be higher in the early years, even if your "average" rate ends up being 8% (when calculated simple average), you're actual interest that you pay will be lower because you're paying 2.25% on $100k now and paying 10% or so (if it gets that high) only in the later years, for example in year 10 when you only have $12k left.

Interest rates WILL go up for sure, inflation is a pretty big risk right now, but I don't think LIBOR will go above 8% in the next 10yrs (I don't think it should ever go that high actually, except for in certain conditions). That means LIBOR + 2% = 10% will be your max. Additionally, the increase will be gradual and any increase won't start til late 2013. Not to mention that when it is pretty high in the later years, hopefully you'll have more money then too and it may be a good idea just to pay the loan off it gets to 9% or 10%.

Bottom line, if you can qualify, private is best.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 04 May 2012, 14:35
In some other threads in which people mention the Sallie Mae LIBOR + 2% rate they mention a co-signor. Has anyone gotten this rate without a co-signor? If you have, would you mind sharing your credit score?

My credit score is 790. I could get my parents to co-sign but I'd rather not if I don't need to. So I'd like to know the expected outcome of a 790 credit score, non-co-signor application before I apply.

I realize I could reapply with a co-signor if I don't like the initial result but I'd rather not go that route as it could potentially result in a second credit inquiry (and I try to avoid credit inquiries because I churn credit cards a little).

Thanks in advance!
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 09 May 2012, 19:55
I had around your credit score, no cosigner, got libor + 4. got cosigner, got libor + 2. from what i hear, doesn't matter what your credit score is, you wont get +2 w/o cosigner.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 07 Jun 2012, 11:05
Hi,

Do you mind sharing with us your credit score, and whether you had any cosigner to get that 2.25% loan?
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 10 Jun 2012, 09:07
Most likely a co-signer. The logic to lend so cheap on someone who is going to quit their job as the reason to borrow the money is not convincing.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 24 Jun 2012, 09:33
What does everyone think about loan options where you pay interest while in school? With some lenders (e.g. Sallie Mae) you can get the lowest interest rate by paying interest monthly while in school. I think I am going to opt for this option. With a 2.25% rate, for a $89K loan x 2 years, I'll have to pay an average of ~$2-300/month for two years, but I can graduate without having incurred 2 years of compounding interest. This option supposedly secures you the lowest rate (pending of course a co-signer and a great credit score).

Here's an interesting article from this weekend's WSJ about this very topic:

Quote:
Lenders are pushing an unusual new product: a student loan that borrowers start paying off while they still are in school. Companies say customers can save thousands of dollars in interest over the life of the loan, but some experts are skeptical.

Enlarge Image

The Daily Camera/Associated Press
Graduating students celebrate at the University of Colorado in Boulder last month.

These "immediate repayment" products—in which borrowers agree to pay back a certain amount of interest, and, in some cases, principal, each month once they take out the loan—have been growing more popular, says Shelly Repp, president of the National Council of Higher Education Loan Programs, a trade association representing private loan companies.

Sallie Mae, the largest private lender, now offers a Smart Option program with three repayment options: make the full interest payment each month while in school, pay $25 of interest monthly while in school or defer all payments until six months after graduation.

The lender says that 63% of borrowers originating loans in the 2011-12 academic year chose one of the two in-school repayment options. That is up from the 5% who made voluntary in-school payments in 2008, the year before the Smart Option loans were formally introduced.

SunTrust Bank and RBS Citizens Financial Group now offer similar loan programs, and Discover Financial DFS +0.48% says it is considering adding one.

RBS Citizens says originations of its TruFit student loans were up about 50% in 2011, though the percentage of borrowers choosing in-school payment held steady. SunTrust says more borrowers are choosing in-school repayment, but declined to provide details.

The push comes as the industry has taken criticism for making it too easy for borrowers to take on onerous amounts of student debt, which typically can't be discharged in bankruptcy.

The pitch: Borrowers can lower the amount of accrued interest and pay less in the long run. In addition, the lender typically offers a lower interest rate and might shorten the payment term.

Parents of college students are likely to be marketed these loans in coming weeks as they try to cobble together this year's tuition payments. But even the lenders say their products should be used only as a last resort after savings, financial aid and federal loans are used up.

Here's how they work: If a freshman borrowed $10,000 at an 8% annual rate, had a repayment term of 10 years after graduation and chose Sallie Mae's full-interest repayment option, he would pay about $67 a month while in school and around $17,960 total, according to estimates from Mark Kantrowitz, publisher of FinAid.org.

With the $25-a-month option, he would pay about $19,500 over the same period. If he waited until after college to begin repayment, he would shell out $20,430.

Sallie Mae typically puts those who choose an in-school option into a shorter repayment term than those who defer. That can further cut down on interest costs.

You can choose between a fixed or variable interest rate. Sallie Mae was recently offering a variable-rate loan at a minimum rate of 2.3% and a maximum 9.4%, and a fixed-rate loan between 5.8% and 11.9%. SunTrust was recently offering a minimum rate of 3.8% on a fixed-rate loan.

Derek Hernandez, a 22-year-old undergraduate at Florida International University, chose a $7,000 full-interest Smart Option loan for the just-finished academic year. He pays about $40 a month, which will save him around $2,800 compared with deferring payments, which would have made Sallie Mae put him in a longer repayment term.

When he graduates, Mr. Hernandez says, "I'm not going to be in such a financial hole. It's also building up my credit."

But these loans aren't necessarily the deal they are made out to be, says Robert Weinerman, senior director of college finance at College Coach, a firm in Watertown, Mass., and a former financial-aid officer at the Massachusetts Institute of Technology.

If you have extra cash on hand to make payments, you could do better by borrowing less and putting that money toward paying college costs directly, he says.

On the other hand, if you find yourself short on cash and unable to make the monthly payment while in school, you will find it hard to defer payments and will be considered delinquent, according to Sallie Mae.

And, if you continue to take out these loans each year, your monthly payment will rise, Mr. Weinerman says.

A $50 monthly payment freshman year would become a $200 payment senior year, assuming rates, loan amounts and repayment options stay the same. Because of this, the loans might be dangerous for students who can't fall back on their parents to make monthly payments.

Says Justin Draeger, president of the National Association of Student Financial Aid Administrators, "The jury is still out on these types of loans."

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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)? [#permalink] New post 08 Jul 2012, 09:17
mandyee wrote:
Hey guys,
I just got approved for LIBOR + 2% loan (= 2.25%) from Sallie Mae. I'm wondering if it makes sense to turn down the Stafford Loans for this, as the interest rate is just so low. I realize the risk is it could go up at any time, but since the repayment terms on both loans are only 10 years, it's a safe bet that over the course of the 10 years, the private loan will still be cheaper for me even at some point it does happen to get up above 6.8%.


I was just approved at this rate by Sallie Mae.

However, I think I may go with the 2.75% loan option instead. It's a 144 month loan (opposed to 96 months with the 2.25%) and it only requires monthly payments of $25 while in school (opposed to the full amount of interest).

The additional 4 years add some comfort and provide a lower monthly payment, which would be helpful right after school. Plus I like the fact that I won't have to deplete my savings by $2-300/month for the next 2 years to make the interest payments while still in school.
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Re: 2.25%(var) private loan VS Unsub Stafford Loan (6.8% Fixed)?   [#permalink] 08 Jul 2012, 09:17
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