Grad Plus VS Private, let's discuss

[jack24]

A big thing you have to be careful about is the fact that your grad plus loan might be different depending on the state you'll be attending school in.  I don't really know why that is. 
I can't get that wachovia deal at my school.  But if they don't pay the 3% origination fee for you, then that 3% reduction is essentially just a fee rebate.  If the wachovia deal pays the 3% origination and then gives you an additional 3% rebate then that's a great deal.

http://www.moneycafe.com/library/prime.htm
this is the historical prime rate.  Most lenders will updated your rate every month, but some will only do it every quarter.

Prime has averaged 6.76 over the last ten years.  So if your rate held to the ten year average, you would have an average interest rate of 6.16. (At prime -.5%)  On most grad plus loans you have an average interest rate of 7.9%-8.5%.
Statistically it is a good gamble.   Prime is at 5.0% right now but there are inflationary pressures that might force the fed to raise rates which will affect the prime rate.  If we return to 1980 style rates then a variable rate will screw you badly.

[MahlerGrooves]

tag

[AmazingGrace]

What is the difference in the 5% loan v. the 8.5 grad plus?  Is peace of mind worth paying a little bit extra for?  Does the rate matter once you graduate and consolidate?

In other words, I have no idea what the answer is to your questions but I think this is a good place to start...

its usually easier to consolidate federal loans. Most of the time theres no credit check and the rate will be the avergae of all the rates for the loans you're consolidating, which could be good if you have other loans (say from undergrad) with a much lower interest rate than the 8.5%.  Whereas with a private loan consolidation, they will normally check your credit. if your credit score has taken a dive during law school (like mine did) then the rate for your consolidation could very well be higher than the rate on the original loan. (In which case, you probably wouldn't even consolidate) But the tradeoff is...if your credit remains great, the interest rate could also be great.  Thats the gamble you take with consolidating private loans vs. federal loans.

Lets hope consolidations get easier to obtain though.  Apparently I missed the memo because I tried to consolidate with Sallie Mae recently only to find out that they have suspended their consolidation program. 

[Just_Chexin]

Tag. This is a very important topic/thread!

[hbb]

http://www.moneycafe.com/library/prime.htm
this is the historical prime rate.  Most lenders will updated your rate every month, but some will only do it every quarter.

Prime has averaged 6.76 over the last ten years.  So if your rate held to the ten year average, you would have an average interest rate of 6.16. (At prime -.5%)  On most grad plus loans you have an average interest rate of 7.9%-8.5%.
Statistically it is a good gamble.

Take a close look at the graph you've linked to: it shows that the prime rate has declined more rapidly in the past quarter than in any other time period in the past ~30 years. I don't think an average of Prime over the past ten years has much utility as a predictor of the movement of rates over the upcoming ten years, as economic conditions are quite different now than ten years ago.

Some economists are comparing current economic conditions to the "stagflation" conditions of the '70s: I would base decisions about the future direction of the prime rate based upon how I thought US economic policy would work to avoid inflation, not on rates over the past ten years. You kids have a much higher tolerance for risk than I do... 

[jack24]

http://www.moneycafe.com/library/prime.htm
this is the historical prime rate.  Most lenders will updated your rate every month, but some will only do it every quarter.

Prime has averaged 6.76 over the last ten years.  So if your rate held to the ten year average, you would have an average interest rate of 6.16. (At prime -.5%)  On most grad plus loans you have an average interest rate of 7.9%-8.5%.
Statistically it is a good gamble.

Take a close look at the graph you've linked to: it shows that the prime rate has declined more rapidly in the past quarter than in any other time period in the past ~30 years. I don't think an average of Prime over the past ten years has much utility as a predictor of the movement of rates over the upcoming ten years, as economic conditions are quite different now than ten years ago.

Some economists are comparing current economic conditions to the "stagflation" conditions of the '70s: I would base decisions about the future direction of the prime rate based upon how I thought US economic policy would work to avoid inflation, not on rates over the past ten years. You kids have a much higher tolerance for risk than I do... 

Probably not.  I'm going with grad plus fixed at 7.9.    (through the federal direct program)

You make a good point about rates, but I would be suprised if the average prime rate went over 9%.  If you can honestly qualify for a private loan with prime -.5% as your rate, I don't think it's really that risky.   Sure, historically the rate has been higher than that, and that's why I'm taking the grad plus loan.  I'm just upset because my visa card is a fixed 7.9%, and that doesn't make the grad plus look like too good of a deal.
     

[Muhammad Ali]

I grabbed prime - 0.5%.  I didn't go with PLUS loans.  It's a gamble but I'm a big risk taker and I think this one is a good decision.

Anyone else in my boat who went with private over PLUS loans?

[*devo*]

tag

[UMKb]

Would anyone that decided to take private over the PLUS loans please let us know if it worked out to your advantage?

Also - does anyone know how home equity lines work? I've never had to take out student loans before, so all of this is new to me. When I was talking to my mom about the PLUS vs. private loans, she offered to do an equity line on her house. I have no clue if that is a good/bad idea...

[jack24]

Would anyone that decided to take private over the PLUS loans please let us know if it worked out to your advantage?

Also - does anyone know how home equity lines work? I've never had to take out student loans before, so all of this is new to me. When I was talking to my mom about the PLUS vs. private loans, she offered to do an equity line on her house. I have no clue if that is a good/bad idea...

That's kind of a broad question.

Home equity lines of credit (HELOC) typically have variable interest rates.  Some programs are offering a rate of prime.  The advantage of a heloc is that you only pay interest on what you owe, so your parents wouldn't have to advance the money until you need it, and they wouldn't have to pay interest while the money just sits there waiting for you to use it.  The payments on these types of loans are almost always interest only for a term, and then they change into a payback period after 5, 7, or 10 years etc.


They could also do a fixed second mortgage on their home equity.  The advantage is that you'd get a fixed rate of around 6-7%, but your parents would get all the money up front in a lump sum. They would have to pay interest on all the money the whole time.


If you have more specific questions let me know.