Federal vs Private Loans

Many students at TUSM will use loans to pay for a portion of their tuition or living expenses.  When borrowing for these costs, it is important to carefully consider your options, and evaluate all relevant factors.  There are two main types of students loans, those offered by the federal government, and those offered by private lending institutions.  The following discussion attempts to highlight some differences between the two.

Federal Loans

 

 Unsubsidized Loan

 Graduate PLUS Loan

Interest Rate

 6.0%

 7.0%

Origination Fees (updated 10/01/17)

 1.066%

 4.264%

Default Repayment

 10 years

 10 years

Potentially IBR Eligible?

 yes

 yes

Potentially PSLF Eligible?

 yes

 yes

Pre-payment Penalty?

 no

 no

Dischargable?

 yes, in case of death or total disability of student

Private Loans

 Interest Rate

 usually variable, depends on borrower's credit, potentially un-capped

 Origination Fees

 varies by lender

 Default Repayment

 10 years, can vary by lender

 Potentially IBR Eligible?

 no

 Potentially PSLF Eligible?

 no

 Pre-payment Penalty?

 varies by lender

 Dischargable?

 varies by lender

In general, Private Loan terms vary quite a bit since lenders are allowed to set their own terms.  Private Loans may have lower interest rates in the short term, but there is no guarantee that they won't rise in the future.  Students borrowing lower amounts, or receiving help with repayment may be able to pay their loans off completely before interest rates rise.  Students borrowing higher amounts should be conscious of what their repayment schedule will look like, and what amount might be due every month.  Federal loans are typically eligible for Income-Based Repayment which bases your repayment amount on your annual salary, ensuring an affordable payment.  Private loans offer no such protection and monthly payments are not generally capped.  If you are opting for a private loan instead of the federal programs, please be sure that you have researched and understand their loan terms.

Did you know?

A typical student borrowing federal loans can expect to pay back 167% of what they borrowed over approximately a 10 year period!  By limiting borrowing now, and paying for expenses out of pocket, students can avoid this 67% increase due to interest and fees.

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