Comparing PLUS loans

Paying for College
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<p>My homework assignment for this month appears to be researching college PLUS loans. So how do you easily compare loans with different rates, origination fees, and rebates so you get apples-to-apples?
Here are three examples (all rates are as of July 1):</p>

<p>Plan A is my daughter’s school’s preferred loan provider:
They offer a discounted 4.85% rate, a .25% reduction for automatic debit repayment, and a 3% origination fee.</p>

<p>Plan B is a non-profit organization well-known to all of us with the initials “CB”:
Standard 6.1% rate, .25% reduction for automatic debit repayment and 3% origination fee.
Okay so far Plan A clearly looks better, right?</p>

<p>Plan C is a large Calif. college lender:
Discounted 5.1% rate, 3% origination fee (which is rebated upon start of repayment) and 1% guarantor fee (not rebated).</p>

<p>So Plan C would appear to be the best value, right?
Am I making a simplistic math error to think this means Plan A will cost me (4.85 + 3.0 - .25) = 7.6% and Plan C will cost me (5.1 + 1.0) = 6.1%?</p>

<p>Am I erring by focusing too much on the lowest aggregate rate and not on other factors such as Plan A being the preferred lender? We’re talking about a loan under $20k. Any other important factors to consider?</p>

<p>The other thing is, the one with the lowest initial rate now may not be the one with the lowest rate next year since they adjust every year and I assume each lender can pad or discount that rate as they please, right?</p>

<p>Assuming I’m going to take out a new loan each year for the next 4 years, it would be nice to stick with one lender, but do parents typically review the rates every year and switch around based on whoever comes out the lowest that year?</p>

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<p>between loans.</p>

<p>A.Loans of the same type between different lenders can have different terms.
PLUS and Staffords are standardize but the lenders can offer different terms in way of origination fees, auto debit, and on time payments. The school has a list of providers that are preferred and which they may get a referral fee. They may give you the best value but they also may not. Do your shopping just as you would for clothes and food.</p>

<p>B. Oxymoronic statement in “nonprofit” for financial institutions. Never look soley at interest rate if you want to save money. ( I use a 24% credit card to save money. Interest is secondary to my ability to use OPM for 20+ days.) </p>

<p>C. If you say that A, B are also PLUS loans then A,B, and C cannot be PLUS Loans. The way I understand PLUS loans is that all lenders that offer PLUS and Staffords must start with the same interest rate and apply discounts to the interest as they deem profitable. </p>

<p>Yes, you did make a math error and is a common mistake for home loans. The origination fee is applied once to the initial loan amount. The rate is applied to the remaining loan amount. </p>

<p>PLUS loans are currently variable interest when in repayment status. My lender gives me a substantial interest rate discount after so many on time payments that other preferred lenders do not currently offer. Could and will this change in the future- probably. I don’t think that lenders can “pad” a student loan like a home loan. They can offer discounts to the initial rate. </p>

<p>Suggest you review Jamimom (the expert in this), sallie mae, nellie mae, major lenders’ student loan websites.</p>

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<p>The school has a list of providers that are preferred and which they may get a referral fee. They may give you the best value but they also may not. Do your shopping just as you would for clothes and food.</p>

<p>That’s what I’m wondering how significant “preferred” is. Does it mean the school will drag their feet in some way when processing the loan from someone else?</p>

<p>*B. Oxymoronic statement in “nonprofit” for financial institutions. Never look soley at interest rate if you want to save money. ( I use a 24% credit card to save money. Interest is secondary to my ability to use OPM for 20+ days.) * </p>

<p>So are you saying not to base a decision solely on a lender’s current interest rate because it will change every year? I can relate to that logic, but don’t know what else to go by then. </p>

<p>*C. If you say that A, B are also PLUS loans then A,B, and C cannot be PLUS Loans. The way I understand PLUS loans is that all lenders that offer PLUS and Staffords must start with the same interest rate and apply discounts to the interest as they deem profitable. *</p>

<p>They do all start with the same 6.1% interest rate and yes, A and C plans do discount it to the rates I showed, I’m assuming “because they deem it profitable”, meaning, the extra business makes the lower rate worthwhile.</p>

<p>*Yes, you did make a math error and is a common mistake for home loans. The origination fee is applied once to the initial loan amount. The rate is applied to the remaining loan amount. *</p>

<p>Okay that’s what I thought, but though my numbers may be slightly off, is my conclusion that Plan C is the best still valid?</p>

<p>*PLUS loans are currently variable interest when in repayment status. My lender gives me a substantial interest rate discount after so many on time payments that other preferred lenders do not currently offer. Could and will this change in the future- probably. I don’t think that lenders can “pad” a student loan like a home loan. They can offer discounts to the initial rate. *</p>

<p>That’s what I meant, it’s clear each lender can decide how much or little to take off the 6.1% rate, but how do I know in the future how much they’ll decide to discount it if at all, once I’m stuck with the loan for 10 years and they adjust it every year? In other words, supposing I pick Plan C now, and next year in July the official rate comes out as 7.5% and Plan C says “we’re not offering no stinking discount anymore, we’re going to charge the full 7.5% rate” and Plan A decides they still want to still discount and offers a 6.5% rate. Well true I can then go to Plan A to get my sophomore PLUS loan, but my freshman PLUS loan is still stuck with Plan C but now at the 7.5% rate. And of course the year after that, Plan A and Plan C can switch places, so I don’t know if there’s any use AT ALL in worrying about whether the current rate I’ve signed up for is good or bad?</p>

<p>Suggest you review Jamimom (the expert in this), sallie mae, nellie mae, major lenders’ student loan websites.
I already did that as I indicated above, and many others as well. Hopefully Jamimom will look in here and comment.</p>

<p>Basically what I’m looking for is how much or how little do other parents examine the fine print and the numbers in a PLUS loan. Does the philosophy lean to “hey it’s only 2 cents but I’d rather have 2 cents in my pocket than in theirs”, or is it “go with whatever institution you know or the school recommends, your rate will float with the tide and there isn’t that much difference anyway”</p>

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<p>All I Know that the lender EFSI for PLUS Loan is great, you can receive up to a 2percent interest rate reduction at repayment.</p>

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<p>from this forum, I’d imagine that a good many of parents are careful with their money.</p>

<p>Interest is very complex subject. Calculations of interest is even more complex. </p>

<p>Option C: appears to be the best choice. If CB in CA is the one that is option C, it the one we use. </p>

<p>Could things change. You betchya. That’s why you got to be shopping just like you shop for groceries.</p>