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All education financing is not created equal; there is a generally-accepted hierarchy that goes roughly like this:
1. First, the freebies: scholarships and grants. Obviously.
2. Next, your own cash savings - including Education IRAs and 529 plans.
3. Federal student loans - stafford loans - are your next best bet. These loans have fairly low interest rates (now fixed at 6.8%), you won't need to make payments while in school, the interest is tax-deductible, and there are very flexible repayment options once you've completed your education. With subsidized loans, the gov't pays the interest for you while you're in school. The interest on unsubsidized loans accumulates while during this period, and can greatly increase your prinicpal by the time you are ready to start repaying. (Hint: if at all possible, at least make a monthly interest payment while you're in school.) Maximum per year: $18,500. (Of which $8,500 can be subsidized. Subsidy is determined by need.)
4. Grad PLUS Loans. These are additional federal loans - PLUS used to mean Parent Loan for Undergraduate Students, but recent changes mean that grad students can use Grad PLUS loans to fund their own education. These loans have fixed rates, at about 8.5%. You can borrow as much of these as you want, up to the total annual cost amount (tuition, fees, and cost of living) determined by the school, less any other aid received. Unlike stafford loans, eligibility for these loans is not just based on your FAFSA - lenders will also consider your credit history. Your payments are derred as long as you are enrolled at least half-time. However, interest will be accruing. Nice repayment options.
4. Private student loans - these loans offer some of the benefits of federal loans, but not all. The interest will not be subsidized (again, do try to make payments to avoid capitalized interest), but you should not be required to make payments as long as you are enrolled at least half-time. Rates can be variable or fixed, and will vary a great deal. Maximum loan amounts will also vary. Your credit history will certainly be used to determine eligibility. Repayment options will vary.
5. Non-student loans: home equity, personal loans, credit cards. Yikes! Use wisely! No special repayment options, and payments due within 1 or 2 months after disbursement.
Generally speaking, you should always shop around for federal student loans. While the government sets the rates and many other features, different loan companies offer different kinds of borrower benefits, including rate reductions. Since new laws went into effect last summer, the word on the street is DEALS DEALS DEALS, so look for the lender that can offer you the best package. And care for your soul - lenders make money off your loans; think about who you want to have your money. While schools may have preferred lenders, you can borrow from ANYONE, no matter what line they school feeds you. At my credit union, we've been referring people to http://www.MyRichUncle.com for private loans. Private loans especially deserve lots of scrutiny as they can vary so much from one lender to a next.
Jumping back into this thread nearly 2 years after I came up with my plan. Graduation is around the corner and I'm looking ahead to the debt service payments I'll be making later this year. Thought this might be helpful to people making decisions about financing school both before and after attending.
I took out about $100k from Sallie Mae at 2% (variable) with half amortized over 7 years and half over 10. I have no clue why I took out a 7 year loan, but that's in the past. Monthly Payment for the 2 loans is about $1,200.
Also took out $40k at 6.8% (Stafford) and $10k at 7.9% (PLUS) all amortized over 10 years. Payment due is about $600.
So, I'm looking at nearly $1,800 a month. Probably more than I realized 2 years ago, but I was also in a different place in life. Like nearly all other second year students, my wife and I are expecting a child soon and can't count on her income as a sure thing to help service the debt. Plus, BSchool is way more expensive than the Estimated Cost of Attendance figures schools provide and we tapped more savings than expected. Most of the expenses, for us at least, seem to come from the social nature of school. Dinners out with other couples, rounds of golf, travel... Part of it is probably that it's difficult to go back into "college mode" when you are 30 years old and have become accustomed to a certain lifestyle (cars, apartments, Whole Foods).
I'm looking to refinance the loans to lower my monthly payments until cash flow improves:
The federal loans are somewhat straightforward. I plan to lengthen the term to the maximum of 25 years. There is no prepayment penalty, so once my salary increases and a few bonuses come I'll make a bullet payment. Some friends would prefer to pay this down as quickly as possible because of the high interest, but I value the improved cash flow at this time. In hindsight, I wish I had taken all (certainly more) out in federal loans because it is so much easier to adjust monthly payments through longer terms, IBR (which I don't think many MBAs would qualify for) and graduated payments. Amortized over 25 years, public loans will run closer to $350 a month.
Private Loans are a bit trickier because fewer options exist. Sallie Mae will not consolidate or refinance the loans. Best I can tell is Wells Fargo at about 3.25% (tied to PRIME somehow) with a 15 or 20 year term. Can't tell from the web, I'd have to actually apply. Consolidating with Wells at the current rate over 15 years gets me down closer to $750 a month.
Total monthly payments after consolidation will run about $1,100 a month. Nearly $700 per month less.
I hope this helps everyone put the cost of BSchool into some perspective with real numbers. If you have any thoughts about my plans, especially if you think this is a bad idea, please let me know.
THank you! That's good to know. I think waiting until the final fin aid information comes through is a good idea. I'll start calling lenders soon after that!
Also, why does having credit inquiries lower your credit score? That seems strange to me..
I found this....
MyFico.com Will my FICO score drop if I apply for new credit? If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.
I remember reading about this when I was shopping for a mortgage. You could get as many inquiries as you'd like within a certain time period and they would all be treated as one.
I thought I would share my very recent (this month) experience in financing my MBA:
1) I received 20.5K in Stafford Loans 2) I received the difference in Grad Plus Loans 3) I was approved for the same difference in private loans through Citizens Bank and Wells Fargo
- IMO, it is a no-brainer to take on any UN-subsidized Stafford Loans: You can't beat no interest for 2.5 years and 6.8 % fixed rate isn't half bad. I will get $8,500 from the Federal loans for this academic year. - I had some scholarship which reduced the amount a little - Private Loans: I used the same link that was posted earlier to go through the private loan options before deciding on Citizens Bank since they cut off another 0.5% if you deposit payments from a Citizens Bank account. I have excellent credit and was approved for a good interest rate, but not the best (5.25% plus Libor). Fortunately, I had a cosigner who was willing to sign the loan with me. Upon re-applying, I was approved for a 3% + Libor interest rate. This means that, with the depositing from a CB acount, I will be paying interest at 2.5% plus Libor. I am lucky to have a cosigner but I know that my own credit made my interest rate strong as well and made my decision to go with a private loan all the more easy. If your school qualifies for the CB TruFit Student Loan, I would recommend it. If not, the other one I considered was Citi Bank's and it seemed to be a good option. However, I have to point out that it is possible for a cosigner to decrease your interest rate by 2+% (someone above said this is not likely)
I have undergrad loans (almost done) with Sallie Mae, Citibank, and Discover. I have MBA loans with Charter One and Discover. Discover's web portal smokes everyone else, but I pretty buy on price. My MBA loans are all private variable rate; at 3.5-4.25%, it was hard to pass up. Rates will undoubtedly rise in the next few years, but my timeframe for payback should only be 2-3 years. About 75% of my loans are fully deferred, the others are interest-only while in school.
Here's the list of factors I considered when weighing loan options. Fed vs. private Fixed or variable Deferral options Rate discounts or graduation reward $ Cosigner vs. none Any fees (Rare. CommonBond has origination though) Repayment length and flexibility
Yes, Perkins loans are available at the graduate level. These loans often have more restrictions on them than other loans, in part because the school itself acts as the lender and the loan is based on financial need. The University of Chicago's GSB, for example, states "the Federal Perkins loan is limited to full-time second year campus students only." Because most business school students have been employed for at least a few years before attending graduate school, they do not meet the "exceptional need" requirement of the Perkins loan.
Carnegie Mellon/Tepper provides the following information:
The Perkins loan program is a federal loan program that provides low interest (5%) loans to students who demonstrate exceptional financial need. No interest accrues on the loan and repayment does not begin until nine months after the student graduates or is no longer enrolled on at least a half-time basis. Perkins loans are administered through the Tepper School of Business and funds are limited.
refurb, that seems to be rate advertised on Citi's NYU Stern microsite for their Citiassist loans. The LIBOR rates are what Sallie Mae is offering to students with a "higher tier" credit rating. Both loans come out to be in the 4.25% to 4.40% range as of today.
Do note however that I have not actually applied for either loan yet. So the rate you get might be different. I'm just trying to get a sense of what's out there.
Where are you getting this info from? I'm really curious about these prime+100bps loans. I've got a great credit rating and I'm thinking I should be able to do better than 8.5% considering the current prime rate.
So how do you go about actually talking to these various lenders (both gov't/stafford and private)? Does a school provide info on how to apply for the federal loans after you've been applied or is up to you to figure that out? I'm yet to be accepted anywhere, so I don't know if there are things I can do now in advance (I've already submitted FAFSA) or if it's okay to wait to see what info/programs the schools have.
Depends on the type of loan, but this is how it worked for me. For Stafford (and I assume other federally-supported loans like GradPLUS), you first file the FAFSA and forward the information to your school. Then you find a lender to administer the loan (generally, schools have preferred lenders -- for LBS, it's Sallie Mae and AMSA), who will create the Master Promissory Note, which you forward to the school. The school then certifies the subsidized/unsubsidized loan amount (based on your FAFSA Student Aid Report and Expected Family Contribution amount), and it's disbursed later in the year.
The private loan process is similar (minus the FAFSA) for school-certified loans, where the school has to approve the amount and is paid directly from the lender. You can also get direct-to-student private loans, though the amounts for those are typically much lower. Overseas schools are a bit tougher (as LBS only works with Sallie Mae or JPMorganChase), but for US schools, I think you can probably approach most lenders for rate quotes/approvals.
Quick grapevine intel for those considering private loans:
Discover appears to be offering variable rate private student loans at Prime minus 50bps (so currently ~2.75%) for domestic borrowers with solid credit AND a co-signer. I hear if you want to go without a cosigner and have excellent credit, you can score Prime plus 200bps (~4.25%).
Discover also offers a 2% reduction in principal as a "graduation reward" when you finish and has zero fees for qualified borrowers.
Not a bad deal.
If anyone sees a better deal elsewhere, please post here for kudos!
As usual, I'm late to the "figuring out how loans work" party.
So. A question: I'm trying to get an idea of loan rates from private lenders. Can I just call and ask what the rates are? Or does it vary so much that I have to apply? And if I have to apply, can I apply even if my school hasn't released the official budget? I thought I had to wait until I had that information before I could apply.
thanks for your help
I think if you just call up you'll get a pretty standard "our rates generally vary from Prime-2% to Prime+5% depending on your personal credit rating." (NB - I just made those interest rates up, I don't know if that's actually what any bank is charging) In order for the lender to tell you precisely what interest rate they'll charge *you* you'll have to start the application process and let them run your credit report/score.
I'm not 100% sure on this, but I think you can start the application now and get pre-approved, find out interest rate, etc. then finalize and actually sign the note once the school's official budget is released.
I think solaris1 mentioned this somewhere, but it's worth repeating: keep in mind that every time you apply for a loan or a lender runs your credit report, that inquiry shows up on your credit report. If you have a lot of inquiries in a short period of time, it can have a negative impact on your credit score.
Also, why does having credit inquiries lower your credit score? That seems strange to me..
It is just a signal of instability in your life. Since there is a lag time in credit reporting, they have to use proxies for information instead of actual information. Looking for a lot of credit can be an indicator that you are about to take more than you can chew, since you could potentially get 5 or 10 huge loans in a matter of a few days without it showing up on your report for other creditors to see. They have to mitigate that risk by assuming that if you are looking for loans at five places, you could potentially take those loans as well. Thus your score goes down, albeit a small amount.
Someone who has more insight into this industry feel free to correct me if I'm wrong.
If you have good credit, this may be very tempting. The LIBOR Rate has been pretty low the last 10 years, even at it's highest before the 2008 crash, it was at 5.5%, which is still much lower than the 7.9% from the federal loans. From graph below, LIBOR seems to fluctuate less than the US Primate Rate as well.
Customers who sign up for automatic electronic payments may qualify for an additional rate reduction of .25 percentage point, and there is no prepayment penalty.
Also, Sallie Mae and Wells Fargo have a Total and Permanent Disability Discharge policy. You never know what your health will be like in 10 years or an unexpected event to happen.
NEWARK, Del.--(BUSINESS WIRE)--Sallie Mae, the nation’s No. 1 financial services company specializing in education, today introduced new lower interest rates on student loans for the 2011-12 academic year. The Smart Option Student Loan, designed to supplement federal financial aid, now offers degree-seeking students the lowest rates in the country and the most choices to help customers save money and pay off faster than a conventional private loan.
“With the Smart Option Student Loan, I make a small $25 a month payment,” says Jaclyn, a senior special education major from Pennsylvania. “It’s a good money-management tool because it encourages me to pay monthly. You pay a little now and you owe much less when you get out in the real world.”
With zero origination or repayment fees, Sallie Mae’s Smart Option Student Loan is available at degree-granting institutions at variable rates ranging between 2.25 percent and 9.37 percent APR, based on today’s LIBOR index. Students can also earn back 2 percent of their scheduled monthly in-school payments simply for making their payments on time.
Sallie Mae also added a new Tuition Insurance Benefit to the Smart Option Student Loan, which reimburses up to $5,000 of tuition, room, board and other covered fees not refunded by the school if a student is forced to withdraw for eligible medical reasons. Sallie Mae’s Tuition Insurance Benefit, for loans first disbursed between July 1 and Oct. 31, provides 12 months coverage at no charge to the student, giving families peace of mind and safeguarding their college investment.
The program was a financial lifesaver to tuition insurance customer Margaret after her daughter had to withdraw from college for medical reasons. “My daughter should be able to get back to school for the summer or fall session, and it certainly makes it easier knowing that her college fund is now replenished and waiting for her to get back to college,” she says.
With the introduction of the Smart Option Student Loan, Sallie Mae revolutionized the private student loan marketplace with a powerful idea: empower families to pay interest while in school and repay over a shorter time period. In fact, customers to date who continue to make on-time payments are on track to save more than $1.7 billion in interest charges over the life of their loans. Three-quarters of customers say they would recommend the loan to a friend or family member.
Today, customers may choose from three in-school monthly repayment options. Depending on the option selected, the typical freshman can save an estimated 17 to 49 percent in interest charges and pay off the loan three to eight years faster after graduation, compared to a conventional payment-deferred loan with a 15-year term:
Interest Repayment Option: Under this option a student, often with the assistance of a cosigner, pays only the monthly accruing interest while in college. After school, the loan’s repayment period is typically eight years shorter, resulting in an average savings of 49 percent in interest charges.
Fixed Repayment Option: With the Fixed Repayment Option, students pay a simple $25 per month regardless of loan balance or interest rate. With the average loan’s five-year-shorter repayment term, a typical customer can save more than 30 percent in interest charges over the life of the loan.
No in-school minimum payment or Deferred Repayment Option: No minimum payment is required while in school, though students and cosigners receive monthly statements on accruing interest, an updated balance, and information on how to make a payment.
After graduation, the average term is three years shorter than the traditional 15-year repayment term, enabling a typical customer to save an estimated 17 percent in interest charges—or more if the student made any in-school payments.
The best rates are offered to those who opt to make payments in while in school. Applying with a cosigner may increase the likelihood of approval and access a more favorable interest rate. Customers who sign up for automatic electronic payments may qualify for an additional rate reduction of .25 percentage point, and there is no prepayment penalty. More details are available through a savings example.
Customers automatically receive Sallie Mae’s unsurpassed consumer safeguards designed to reward students for establishing responsible financial habits. Students and their cosigners receive easy-to-read disclosures when they apply, when they are approved, and upon acceptance of the loan. Applicants have 30 days to compare competitors’ rates before accepting an offer and have three days after accepting the loan to cancel with no obligation. In addition, the company was the first national lender to provide loan forgiveness for cosigners of its Smart Option Student Loan in the tragic circumstance of the death or permanent disability of the primary borrower.
Just thought I'd update this with some info I've gotten back from Sallie Mae. I asked for the exact amount I was "awarded" by the grad plus loan and just received my interest rate... marginally better than the GRAD plus. I was told by the loan officer that I received a phenomenal rate - most single borrowers she sees approved at 11-12%
I can't imagine that I'll spend any more time looking for a private loan... cannot believe that I could buy a house and car and the interest rates combined wouldn't equal almost 8%!
If anyone has a success story, would appreciate hearing it.
^yup. Mine are split between Discover (4% var. after discounts, full deferral) and CharterOne (3.25 var., interest only in school). CharterOne's servicer FirstMark is a PITA, but the rate makes it worthwhile. Discover is easy all around.
Sterling credit, good income at time of app, wife co-signed.
If you're shopping loans, keep in mind all apps for student debt within 30 days only count as a single hard inquiry for credit scoring purposes. Apply everywhere at once.
Would you mind sharing why you selected two instead of going with either only CharterOne or only Discover? Also, what makes CharterOne a PITA? (had to google to find out what this meant)
Sorry for the mysterious acronym. PITA = pain in the butt.
I split the loans, because I wanted to minimize my total interest costs. Lower rates are typically available for shorter repayment terms and less flexible deferment options (full pay or interest-only in-school). I applied to 7-8 or different lenders and each offered 3-10 combinations of rate/term/repayments. I think my repayment will be relatively short, but didn't feel comfortable locking myself into a 5-year plan on the whole amount. I took about 25% of the COA in a very low-rate, short repayment, interest payments in-school loan. But I took the rest in a moderately low rate, long repayment, fully deferred loan to provide flexibility.
CharterOne was great during the application process. A bit pushy when it comes to signing, but that's true for all lenders. After I signed, they turned my account over to a 3rd party servicer, which is pretty typical for many loans (student, auto, mortgage). The servicer, Firstmark, is lower-tech and much less responsive. They were supposed to have a 30-day turnaround on my autopayment setup (hardcopy form via snail mail) and they kept screwing it up. In total, it took 4 months and several hours on the phone to establish autopay and I lost out on the interest rate discount in the meantime. My emails and phone calls were completely ignored during the process.
1. Take the Sub Stafford Loan only $8500 per year. sucks.
2. Instead of the usual Unsub Stafford Loan for $12000 @ 6.8%, take the Graduate PLUS Loan all the way. but Must go with College Founction of NC.
After I compared numberous lenders, I realized that this one is actually slightly better than the Fed's Unsub Stafford Loan.
It is at 5.5% plus 3% automatically credited back to principal loan balance. The only thing that can beat this is the Perkins loan.
For borrowers with excellent credit (750+ FICO), I am currently hearing of "private" (school-certified) loans at Prime+100bps or around 1mLIBOR+400bps. But this will vary by the school you're attending and your credit history.
If these rates stay in effect until May or July 2008, I personally intend to apply for a 1mLIBOR indexed loan over the GradPlus loans which are, as we know, 8.50% fixed but also include 3.00% upfront in origination fees and a 1.00% federal default fee. The "private" loans, for borrowers with excellent credit, tack on 0% in fees. I am led to believe a LIBOR indexed loan is preferable to a Prime indexed loan because the spread between the two has been increasing over the years, in 1mLIBOR's favour.
This is just based on my (limited) research so far. YMMV. I'd love to hear if anyone else has found other information worth sharing.
Re: Financing Your MBA
21 Jan 2009, 14:24