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 https://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.

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socalmike

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06 May 2011, 17:16

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If you have good credit, the Wells Fargo rate is 1.45% base + prime (currently 3.25%) for a total of 4.7% with no origination fees. WF will reduce your base by 0.2% if you allow them to take automatic withdrawals from a bank account and they will reduce the base another 0.5% when you graduate.

I'm considering using a private loan my first year and using the Federal Plus Loans for my second year so that the interest doesn't accrue to much while I am in school.

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11 May 2011, 16:10

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Private loans can be a great deal while the interest rate is low.
I still have my Citi loan and it is at 2.87% for the first year and 2.5% for the second year.
Of course this has been at 7.87% and 7.5% when the economy was doing well, but you may not need to worry about it for a while.

The balance is less than half of what I borrowed and I could pay them off but why bother with such interest rate? I keep it in the mutual funds and so far it is covering the interest fairly easily - we'll see how it goes further but so good so far.

P.S. i believe Citi has discontinued their student loan program

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11 May 2011, 19:02

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socalmike

That sounds pretty decent - I also like the idea of mixing loan types.

Have you looked into Sallie Mae? I haven't started the process, but just glancing at their site it seems they offer loans at 2.5% +LIBOR (effectively 0) with deferment options and things like that similar to the Stafford/PLUS loans. Guess it makes sense since they're one of those quasi-governmental groups.

I'm thinking of taking the $20,500 Stafford loan then getting a low interest private loan for year 1. The economy I think will get better but it's going to take a couple of years. By the time it gets to 8%, hopefully, I would have paid off most of my loans so the amount that accrues at that rate is limited.

Any thoughts on this strategy?

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11 May 2011, 23:07

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I am not a finance expert (please chime in if I am totally off base here) but I think it makes sense to mix a fixed & variable rate loans. You can pick which one you want to pay off first and take advantage of either scenario. (e.g. economy does great, so your variable loan shoots up - you can pay it off first; or economy is in the crapper, hopefully you can find a job, and then you pay off the federal loan first).

Another strategy to consider is that if the economy does go down, your chances of finding a high paying job out of the gate, will be slimmer than if the economy does well and in that case, having a private (variable interest loan is better) but it is definitely riskier. Perhaps you can get a 5/1 ARM? :lol:

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17 May 2011, 15:11

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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.

https://www.businesswire.com/news/home/20110516006405/en/Sallie-Mae-Lowers-Rates-Education-Loans-Adds

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.

To learn more about Sallie Mae’s Smart Option Student Loan, visit https://www.SallieMae.com/choosesmart.

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24 May 2011, 15:00

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mEEchigan04

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.

wow thanks for posting your experience, I was just wondering if I would be able to get much better than the GRAD plus rate and if it would be worth my time if to shop around or take the risk of a variable rate if they are close to the same. My credit is above average, but I would not say great, so this makes me think I will most likely just go with the GRAD plus

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25 May 2011, 00:20

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mEEchigan04

I just heard back from Sallie Mae and got the same as you and I have a very high 700 credit score across all three credit rating agencies. I think the way to get that low 2% + LIBOR loan is to have a co-signer. I'm going to try one more application and choose to pay the interest while in school and have my dad (800+ credit score) added to see if that will get me that 2% rate. If I don't get it, I'll just go with the Federal Loan.

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25 May 2011, 00:29

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Back in my day, I did get a co-signer for my loan to get the private one (had no credit history in the US when applying). Here are my current interest rates - hopefully helps and hopefully you can get find a good private alternative.

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socalmike

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25 May 2011, 10:27

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Is your variable portion LIBOR?

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25 May 2011, 11:36

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socalmike

Is your variable portion LIBOR?

Yes, and the T&C are something along these lines (i copied from their site right now, but mine are the same as far as I remember).
I also got the 0.25% reduction after paying on time for 1 year or smth like that. Now they are offering 0.25% reduction for auto-pay enrollment.

The variable rate is determined quarterly on the first day of January, April, July, and October based on the published LIBOR Index 15 days prior to those dates. The Annual Percentage Rate (APR) for a loan will increase if the 3-month LIBOR Index increases and would result in higher monthly payments, an increase in the number of scheduled payments, or both.

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25 May 2011, 12:55

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Citi also gave me the best rate. In the high 3.xx

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25 May 2011, 13:08

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Has anyone found a good single website to get rates, almost like a marketplace of lenders perhaps, such as lending tree or zillow?

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25 May 2011, 14:14

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Has anyone found a good single website to get rates, almost like a marketplace of lenders perhaps, such as lending tree or zillow?

https://www.finaid.org/loans/privatestudentloans.phtml

This website has a fairly comprehensive list of private lenders and their current offers.

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26 May 2011, 05:29

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maybe I'm I don't know enough about this topic, but if you're going in-state, why would you get a private loan over a Federal Loan? NC coves 20K a year and that covers most public and private universities here (I say most). Are we all talking about colleges that cost more than that?

I'm asking curiously because I'm depending on the fact that I get Federal Loans - which the Financial Aid office said I'm eligible for if I'm accepted.

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26 May 2011, 06:56

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@carosemena - 1. Your sense of tuition and total cost of attendance are way to low 2. most top programs people are applying to on this forum are private (though some are public{darden, ross, UC schools), 3. The NC program is news to me and i can assure you very unique, particularly if it offers aid for private institutions

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26 May 2011, 07:57

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It was last week and it was with a co-signer.

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26 May 2011, 08:57

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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

My decision:

- 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)

Good luck in your financing ventures!

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26 May 2011, 10:28

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CAmba11

I think the key here is to have good credit and make sure your co-signer has good credit too to get the best rates. My efforts have been mostly focused on Sallie Mae and Wells Fargo because they have forbearance for death and permanent disability. Call me paranoid but it's a nice policy to have. The question I have is how is the implementation of this policy different than the one for Federal loans (ie what's consider permanent disability).

Michmax3

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26 May 2011, 11:14

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CAmba11

Thanks, this helps! I noticed on the TruFit loan they specifically say the disbursements are sent directly to the school, the Citi site didn't specify. How does this work since the total cost of attendance the school provides you with includes more than just tuition? If disbursements are made directly to the school, does this mean you cannot use funds from this loan to cover living expenses, books etc that must be paid independent of the school?

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26 May 2011, 11:30

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Mich,

That is a good question. I have not received the final disclosure for my private loan (Citizens verifies that I will be a student with my MBA program), but I believe that all funds flow through the school's financial aid office. Then, a portion is allocated to cover your tuition and the rest is dispensed to you for general use.

Each school may vary in the exact disbursement process so it's best to call your school's financial aid office and ask them how it will work.