This was basically the choice I faced this year when trying to decide which loan to use
For example, lets compare a private loan with 0% origination fee and a variable 6.3% interest to a GradPLUS loan with a 4% origination fee and a fixed 7.9% simple interest rate. I have also built in slight increases to the private loan to account for the variable rate. (Note that 1.5% of the origination fee is refundable payday loans in Reserve after 12 months of payments, but interest will still accrue on its amount. For this illustration I am using variable rates of 6.3%, 6.5%, and then 6.8%)
Under GradPLUS: 1.025 * 1.079 + (1.025 * .079) + (1.025 * .079) = 1.2679 + .015 possible Under Private Loans: 1.00 * 1.063 * 1.065 * 1.068 = 1.2091
Apply to several loans to compare interest rates
Taking 126.8% – 120.9% would mean you are looking at around a 6% difference in your loan amount (if you keep up to date on your payments) at the end of 3 years. This means a difference of $1,200 if you are borrowing $20,000, which is a substantial sum. If you factor in the loans from all 3 years of your law school education, your savings would come out to be over $3,000 if you only borrowed $60,000 total from private loans. Of course these savings could decrease in the future if the variable interest rate continues to rise. However there are a few private loans with no fees that have fixed interest rates.
1. Be willing to forego the Federal Benefits such as deferment or forgiveness upon death. 2. Attend a law school that offers LRAP for either private or Federal loans. 3. Can accept some risk or has financial assets or other loan options to consolidate loans in case of steep rise in interest rates ( more information in final section) 4. Has good credit and/or a cosigner with good credit.
Ok so if you decided to look into Private Loans, you need to know your options. There are many, many financial companies that provide graduate student loans, but usually most people go with large and well known companies like Chase, Discover, Sallie Mae, Suntrust, etc.
1. Origination fees not only add 2-4% cost right up front (thus making your loan almost as expensive as GradPLUS), but then this amount is subject to interest accruing over the next 3 or 4 years. Many companies offer 0% origination fee so don’t settle for anything else.
2. You are looking into private loans to expand your options and save money. Thus you should compare several options by applying to several companies. Private loans don’t give you a rate quote until you apply, so you especially need more than one option in case you are quoted a very high interest rate. (For example, when I applied for private loans I was quoted 10.5% by one company and 6.1% by another… a difference of over 4.0%!)
3. Look for extra benefits that could add or reduce the cost of your loan. Many companies have special terms such as reducing your interest rate if you pay by ACH or a special bonus if you graduate.
As a basic starting point, I’ll give some examples of decent companies to get a rate quote from: (If you are unsure about the LIBOR or Prime Rate information it will be discussed in the last section.)
Make sure you find a loan that has no origination fees
Finally you want to consider your payment terms for these loans. Unlike GradPLUS, you can choose to either defer all payment, pay only interest, or start payments immediately. I would suggest people consider paying interest only on your loans while in school. These payments are quite minimal as you are not paying down principal, but in the long run you can reduce your balance by a substantial amount.