Getting Ready for Columbia Business School, Running, et cetera

Tuesday, April 25, 2006

Loan Preliminaries

Both last night and tonight I have puttered about the citibank and access group sites, trying to figure out what rate I could get on my private loans.

Yesterday was citibank, and it was a total fiasco. I had a spreadsheet open, calculating how much money to borrow. I asked for the whole amount, forgetting that I can get $18,500 in subsidized and unsubsidized Stafford loans. So I asked for 18 grand more than I need. Idiot! After submitting a feverish reduction request, I waited until forever for a response. I got it today: Prime minus 0.5%, which means that I have excellent, but not superior credit. So citibank would make me pay 7%, given today's prime rate.

Today I checked, and there are actually links on the columbia to-do list about private loans. So I think that I jumped the gun on citibank. Tonight I used the link to try the Access group site. It was much easier to do the second application, because I was ready for the questions. Anyway, Access group offered me LIBOR plus 1.7%, which seems to be as good as I could get from them. That works out to a bit more than 6.5% at today's rates.

There's been some discussion on the yahoo board about the historical differences between LIBOR and Prime. What I take away is that Prime is generally 2.7% higher than LIBOR. So LIBOR+1.7%=Prime-1%, usually.

Now I have to think about whether I'm interested in the fixed rate Federal Plus loans, which are fixed at 8.5% during school, but can be reduced by 1.75% to 6.75% after school by paying on-time and paying with direct debit. This would be 2% extra for two years, which is a bit less than 3 grand for my estimated borrowing. Then there's the time after school. Ughh, I'll think about that when I have time to play with excel.


At 11:06 PM, Blogger ZhiLuv said...

This info was posted on the yahoo group by C. Del Anderson and convinced me to apply for Access Group over Citibank. Thought it might interest you.

1) The access group offer appears better than the Citibank offer if you plan to payoff the loan more rapidly than the planned payment schedule. The Citibank loan says that it will pay your final six payments, but that would require you to be paying the loan over the entire 10+ year period. If you payoff early, you don't get the free payments -- and if you pay slowly to get the free payments, you'll be paying significantly more in total interest. The deciding factor for me was the interest rate reduction
after 36 months. Access group drops the rate a full 2% after 36 months, while Citibank drops it 1% after 36 months and another 1% after 48 months.

2) As for fixed-vs-floating: I think that someone with good credit would probably be throwing money away by selecting the fixed-rate (8.5%) offer. Basically, the fixed-rate loan is offered at the same rate, regardless of borrower credit, while the LIBOR-based loan is has a difference of 1.8% between the good credit and marginal credit categories. The average LIBOR + 1.7% rate over the past twenty years has been about 6.8% --well below 8.5%. If you assume that inflation is not going to pickup globally over your repayment period and that past LIBOR rates are a good estimate of
future rates, then you'd be overpaying. On the other hand, if you have relatively poor credit, then the choice isn't so clear and it may make sense to select the fixed rate loan in case rates do climb dramatically. Another negative already mentioned is the automatic 3% penalty on the fixed rate PLUS loan at origination.
Edge: Floating (if good credit) / No clear answer (if marginal credit)

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