I have been scanning school's financial aid websites to see examples of how the comparison between these loan programs is being presented to graduate students. With interest rates so low, it can be difficult to get a student who has a variable-rate private loan with a 5% interest rate to even consider a fixed-rate Grad PLUS loan of 7.9% to 8.5% with fees which make the APR even higher. That's why I think it is so important for students to have access to comparison tables so that they can see how the loans differ, especially when it comes to repayment options and interest rate structure. The recent implementation of IBR and public service loan forgiveness programs on federal student loans should be reflected in these tables as they are factors students may weigh heavily in their decision.
Here are a few websites that I thought were worth noting:
- Compares Grad PLUS loans alongside private loans in the a table titled "Alternative Loan Options"
- Compares products across 16 different criteria including loan type (fixed vs. variable), loan fees, repayment terms, benefits, etc.
- Provides this description of how federal and private loans differ when it comes to repayment:
- A variety of repayment plans to help manage your payment amounts and budget
- Unlimited deferment while enrolled in school at least ½ time in a degree-granting program
- Protections should you become permanently and totally disabled
- The option of forbearance during temporary periods of financial hardship
- For those trying to make sense of how to compare a variable-rate private loan to a fixed rate federal loan, they highlight risk tolerance as a factor to consider:
- If so, a variable interest rate loan may interest you. The interest rate on a variable interest rate loan will change each quarter and your payment will, therefore, change each quarter as well.
- If not, you may want to consider borrowing a fixed interest rate loan. With a fixed interest rate your monthly payment will always be the same for the life of the loan. The predictability of this type of loan can help you better manage your money.
-------------------------------------
Duke Law provides a table comparing features of Grad PLUS and private loans while also discussing how to think about the interest rate factor:
Both the Graduate PLUS Loan and a private educational loan have their relative benefits and drawbacks. The decision on which loan program to utilize may come down to your individual preference and comfort level with the interest rate environment. This is the same question home owners need to consider when they are looking at a fixed versus variable rate mortgage. It may help to look at historical information that can give you an idea of what interest rates have done in the past. Most lenders offer private loan interest rates based on either the most current 3 month LIBOR rate plus an index or the Prime Lending Rate. However, past performance is not a guarantee for how future interest rates will move in the future.
If you would rather sleep well at night knowing you have a fixed interest rate loan that will not go up, then a fixed rate Federal Graduate PLUS loan may be what you choose. If you feel that a variable rate will run consistent with a lower rate trend, then a variable rate private educational loan may be best for you. The interest rate is one component to consider. You should also consider other attributes of the loans.
Duke also puts together a list of factors that might sway whether a student would be more predisposed to one type of loan versus another, including the loan forgiveness aspects of the Grad PLUS program (they also have a special section dedicated to this topic of forgiveness):
You may prefer the Federal Graduate PLUS Loan:
- You like the certainty that a fixed-rate loan provides.
- Your credit is good, fair, or poor, your cost may be lower with Federal Graduate PLUS.
- You like the protection of greater deferment and forbearance options.
- You may work in the public interest sector and will qualify for Federal Loan forgiveness through the College Cost Reduction and Access Act (CCRAA)
You may prefer a private educational loan:
- You are comfortable with the possibility of interest rates increasing beyond the interest rate cap of the Federal Graduate PLUS loan.
- You have top-tier credit. Borrowers with great credit scores may be charged less interest now, but if interest rates continue to climb, it could cost you more.
- You believe that there is very little possibility that you may use the deferment or forbearance options.
- You plan to borrow the loan only for a short time.
- You do not plan to work in public interest sector.
--------------------------------------
Berkeley Law has a comparison table for Private and Grad PLUS loans and compares them across eleven factors. One thing that stood out in their table was this highlighted item under Repayment Options:
This provides a good reminder for schools with such comparison tables to update them to reflect the new IBR and Public Service Loan Forgiveness programs.
-------------------------------------
Midwestern University provides a well designed comparison table: Download 09-10 Grad PLUS vs Private Loan Chart. While many tables created for this purpose will provide the placeholder "Varies by lender" for many of the private loan features, Midwestern goes the extra mile. They provide details on the range of features that may be available through a private loan and important tips for borrowers. Here is how they described what to look for with interest rates on private loans:
With Death and Disability, Midwestern provided this detail about private loans:
----------------------------------
Do you have a Grad PLUS and Private Loan comparison table or write-up that you would like to share with the community? Feel free to send along to me at [email protected]
Comments
You can follow this conversation by subscribing to the comment feed for this post.