I'm about to take out a student loan. Is this a good deal?

[bnorm]

Never take out a private loan if you can possibly avoid it. The reasons are as follows: -Almost no private lender can guarantee a loan at rate as low as the governments; -Private loans almost always have a variable rate; it can be low now, but can fluctuate with the wind, whereas almost all federal loans are fixed (or at least capped) -You can consolidate federal loans several times over to lock in lower rates for life; you CANNOT do this with most private loans -If, for any reason, you need to declare bankruptcy in the future (and I doubt you will with your FICO score), no student loans (private or government) can be attached to the bankruptcy; if you fell on hard financial times, the government rates will almost always be lower, will always be able to be consolidate, and will always work with you to arrange forbearances, deferments, lower payments, etc. The same can NOT be said about private loans. Never, never, never, never take out a private student loan unless it's absolutely necessary.

[Anonymous]

If you have any assets such as works of art, receivables( money owed you), you might be able to use them for collateral, dropping your rate. For example if you have equity in you car, the amount you have might reduce the rates on a portion of one or more of loans. Here in Miami we just had a case of a local fellow who borrowed 150K using only a work of are as security.  Good Luck!

[ChemGuy]

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heather76 wrote:

You know, what is most concerning to me is not the loans...it's the aparent cost of tuition.  Did you say all those loans are for ONE year!?!?  Very few jobs out there require a high-priced college education... are you sure you can't limit your costs?  That's entirely too much money to pay in my opinion- my entire Masters Degree costs $9000, not including grad costs.  I could pay my tuition plus mortgage payment for two years for the amount you're considering getting.  College is like everything else- shop around!

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You have to keep in mind that the average student coming out of top MBA programs (Top 15) are making ~100-120k in the first year alone, and 95% recover earn lost wage + school cost in less than 6 years.  The investment is well worth it, so long as you are taking a directed approach toward your career.  Those attending lower tiered schools average 85k in the first year, so it takes a little more time to realize the return on investment.  (To calculate ROI, take difference between projected salary after school and pre-mba salary and divide it into lost wage + cost)

Here's an example:  I currently made 76k / year prior to school and 125k after.  So:

2 years at B-School:  147k (including living expenses)  <--- all loans

Missed salary:            152k

Total Investment         299k  <----- Whoa mamma!

Difference in Salary:  125k-76k = 49k

Time to recover investment:  299k/49k = 6.1 so 6 years, 1 month and 6 days before I recover investment.  And that's treating income as static, which it is not.  Couple that with the fact that most students don't take out 150k in loans, and the fact that there have been employers who pay off grad loans.

Sounds stellar to me :-)  Just wanted to add some perspective.  An appropriately chosen career following an MBA can be phenomenally rewarding.  By  extension, misguided pursuit of the degree can be financially ruinous.

[tryingtogetitrightnow]

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@ChemGuy wrote:

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@Anonymous wrote:

You know, what is most concerning to me is not the loans...it's the aparent cost of tuition. Did you say all those loans are for ONE year!?!? Very few jobs out there require a high-priced college education... are you sure you can't limit your costs? That's entirely too much money to pay in my opinion- my entire Masters Degree costs $9000, not including grad costs. I could pay my tuition plus mortgage payment for two years for the amount you're considering getting. College is like everything else- shop around!

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You have to keep in mind that the average student coming out of top MBA programs (Top 15) are making ~100-120k in the first year alone, and 95% recover earn lost wage + school cost in less than 6 years. The investment is well worth it, so long as you are taking a directed approach toward your career. Those attending lower tiered schools average 85k in the first year, so it takes a little more time to realize the return on investment. (To calculate ROI, take difference between projected salary after school and pre-mba salary and divide it into lost wage + cost)

Here's an example: I currently made 76k / year prior to school and 125k after. So:

2 years at B-School: 147k (including living expenses) --- all loans

Missed salary: 152k

Total Investment 299k ----- Whoa mamma!

Difference in Salary: 125k-76k = 49k

Time to recover investment: 299k/49k = 6.1 so 6 years, 1 month and 6 days before I recover investment. And that's treating income as static, which it is not. Couple that with the fact that most students don't take out 150k in loans, and the fact that there have been employers who pay off grad loans.

Sounds stellar to me :-) Just wanted to add some perspective. An appropriately chosen career following an MBA can be phenomenally rewarding. By extension, misguided pursuit of the degree can be financially ruinous.

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I am a believer in further education. There are also non-financial benefits as well. Love of learning, enjoying your job more with career advancement, etc. However, one thing to include in your calculation is that extra 49k every year that's about 76k will be taxed very heavily. With an income of 125k/year you'll be in the 25 or 28% tax bracket (depending on if you're married or single), and you won't be able to deduct your student loan interest by the way as well.

I still think it's worth it. I'm a Software Engineer and I'm doing a Master's program right now part time while working full time. Mine isn't as expensive as yours in big part because I'm not missing out on salary, though.

Good luck, and congratulations on furthering your education and career.

[Anonymous]

I've never heard of being able to consolidate federal loans more than once (unless you add an additional UNconsolidated loan to the mix).

Where'd you hear that??

[Anonymous]

I had a friend of mine who got into student loan troubles tell me, tongue partially in cheek, that he'd rather have borrowed from the Mob than gotten a student loan. "At least then I'd have known where I stood," he said wistfully.

I would just counsel the OP to be absolutely sure they're going to get a ROI that warrants taking out such a huge loan. In dollar terms, education is often overvalued. My experience with corporate America is that your ability to toe the corporate line, avoid independent thought, follow orders without question, and regard the clock as your personal god count FAR more than any diploma or certificate you have.

However, your mileage may vary.

[Anonymous]

I agree with Driveloader.  Too much emphasis is placed on the name of the school.  Paying more is not indicative of the quality of the education.  There are two types of Universities.  The first stresses theory and the other stress real world applications.  Both types are good and neither will ensure your career success.  I have hired and fired many people in my career.  I have had Yale graduates and local Cal-State graduates.  The Cal-State grads did better than the Ivy Leagues.  Myself I went to Cal-State Fullerton.  CSUF is one of the best business schools in California.  I got my graduate degree from Golden Gate University in San Francisco.  Both schools are reasonably priced and I paid for both degrees from part time jobs for my undergraduate and savings for my graduate degree.  Remember that education is only a tool.  Albeit a really good tool.  However, only your efforts and discipline will ensure career growth.  After your first or second job, where you went to school becomes less influential.  If a garbage man makes $75k a year within 2 or 3 years from high school and you make $100k after 4 years of college and 3 years of continued career growth working 50-60 hours a week, how long will it take for you to catch up to the garbage man who only works 40 hours a week?  The answer is a long long time and the garbage man does not have a school loan.  I think more emphasis should be placed on career goals and career management. 

[Nectarine]

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@Anonymous wrote:
I've never heard of being able to consolidate federal loans more than once (unless you add an additional UNconsolidated loan to the mix).

Where'd you hear that??

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If you do direct loan consolidation with the government, you can re-consolidate if you have at least one FFEL Loan (Stafford is the most common). I'll be doing it every year (just about) with my unsubsidized staffords to take advantage of the new interest rates.

But yes, you're right, you have to have at least one federal loan to add to the mix.

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The thing with college tuition is that it's gone way, way up in the past several years. to take on a full-year English program at, say, Harvard would put you down about $45K a year, not counting living expenses. And it's been that way since I was last in HS (about six years ago). Going to the University of Anystate for grad school will most likely cost more than $20K a year, not counting living expenses. School is expensive. I'm going through it now and it's taken me a while to get this far because it's hard to pay for everything on your own (and I don't have parents to help). Even with student loans and grants, it will never cover all living expenses. It's easier to use my student loan "leftovers" to save for a necessary procedure and use the money I make at jobs to pay for my cot of living.

I find it really quite insulting that people who are NOT going to school are all but saying "you're too caught up in the prestige, that's why you're paying so much" while the current students are telling the truth by saying "no, it's pretty much like this everywhere." To suggest that $21K is somehow waaaay too expensive for grad school is a bit silly. Grad school might be a bit less for me if I stay in WA and if they wind up considering me a resident. Then, it'll be about $16K a year (not counting living) and that is truly VERY cheap for a master's program. No matter where I go, it will be at least $30K a year for my doctoral program. If I move to MD, it'll be $21'000-28'000 per year.

I get that it's expensive (trust me, I'm feeling the pinch), but compared to other schools it's normal.

Message Edited by Nectarine on 06-13-2008 03:12 PM

[Anonymous]

DL,

I am a financial aid administrator who has student loans in repayment but utilized the federal student loan program to its fullest while attaining a PhD (I will pay the loans back for 30 years but its ok its good debt ).  Federal student loans are a prime example of "good debt" because the return of this investment is much greater than the debt incurred.The worst thing you could ever do is select a private educational loan rather than a federal stafford loan.  Stafford loans are not based on your credit score and all students are approved unless you have defaulted on a previous federal student loan or reached your aggregate limit to recieve federal stafford loans (for graduate students the max is $138,500). 

The graduate plus was implemented two years to assist students with additional loan funds without taking out an educational private loan.  While the grad plus loan is based on your credit score the criteria is less stringent than an educational private loan.  Educational Private Loans are the last resort for students when all options are exhausted to pay for college. 

You have a great award package for a graduate student because your institution has offered you a grant (rare for graduate studies) the maximum subsidized and unsubsidized stafford loans and the grad plus loan is offered to meet the remainder of your Cost of Attendance (COA).  You do not have to accept all these loan funds if you don't need them.  The school is offering you what they can up to the calculated  (COA) of your instituion based on tuition, fees, room, board, personal expenses, loan guarantee fees, books, and supplies.  Only accept what you need. 

Yes, there are several changes that will be enacted by the federal government on 7/1/2008 that will not effect graduate students; however, If you ever want to learn more about the student loan industry and the changes that are occuring all students may visit federalstudentaid.ed.gov or our national organization nasfaa.org. 

Our federal government may do crazy things but the federal student loan program is the best example of "pay it forward".  We receive student loans today, pay the loans off tomorrow, and the future generation can continue to receive federal student aid.

I hope this helps!  Good luck in your studies!

[Anonymous]

Take it from somone who has worked in financial aid for over 35 years...take the sub and unsub Stafford loans...your school is offerring you the maximum annual amount you may borrow which means they have given you a great aid package. You will not get a better interest rate (6.8%) and the feds will pay the interest on your sub loan while you are enrolled at least half time, during your six-month grace period and during periods of authorized deferment if you qualify later on. Also those loans are NOT credit based. The Grad PLUS loan is based on credit but not in the traditional sense. They don't look at your FICO. The Department of Education has defined "adverse credit" to mean certain things...and as long as your credit report does not show any of those (like tax liens for instance) you can be approved. Even if you are determined to have adverse credit, you can still get the loan by using a creditworthy cosigner. Take all of the federally reinsured loans you can get (sub, unub and PLUS) as they come with certain benefits that private loans do not normally offer = such as your choice of multiple types of payment plans after you leave school - like graduated payments that start lower and increase over time the way your wages should or income-sensitive payments that are based on your annual income - as well as certain deferment provisions, like if you are unemployed or temporarily disabled. No private loan of which I am aware offers that kind of protection for the borrower.

I noticed that one of the repliers stated that the interest rate on Stafford loans was variable. That is no longer true - they are now at a fixed rate of 6.8% - a rate by the way that is set by Congress, not the lender. And no lender can charge a higher rate of interest on those loans. Congress also sets the interest rate for the PLUS loan program.

And a helpful tip....your unsub Stafford and PLUS loan will be accuring interest while you are in school and in your grace period. If you can at all afford to pay that interest as it accrues - monthy or quarterly - DO IT! Make arrangements with your lender right away to start that payment - even before the loan is disbursed. If you don't the lender is permitted (by federal regulations) to capitalize that interest (add it to your principal balance) when you enter repayment. This means you will pay on a higher amount than you actually borrowed, and interest will be charged on that higher amount. Paying the interest as you go along will save you hundreds - perhaps thousands - of dollars when it is time to repay your loan.

Read your promissory note (Master Promissory Note) for both the Stafford and PLUS loans. There is tons of information there that will back up what I have stated. I know it does not look like interesting reading but you really need to be informed. And ask questions - of your financial aid office staff and of your chosen lender. They are generally happy to make sure you understand exactly what is going on. Schools and lenders do not want you to default on your loan - it is bad business for them. So make sure that if you run into problems once you go into repayment, the first thing you need to do is pick up the phone and call your lender.

And congrats on going for your masters - God speed!