Which Interest Rate?

[Knee Deep in Water Chloe]

Variable Rate at 6.74%
Fixed Rate at 10.99%

This is for a $13,000 student loan.

What other information do you need to help me choose?

[Knee Deep in Water Chloe]

Oh, and thanks!

[Deleted]

term of the loan. 5 years, 20 years?

on the variable rate, what are the yearly and aggregate caps?

[swamp]

Why is the interest rate so high?

[Knee Deep in Water Chloe]

Term is 15 years
Let me go look for the answer about the caps.

Swamp, it's through Wells Fargo.

[thyme4change]

Will this be the last of the student loans, or do you need to go back for more next year?

[swamp]

Jun 17, 2011 13:48:17 GMT -5 Knee Deep in Water Chloe said:

Term is 15 years
Let me go look for the answer about the caps.

Swamp, it's through Wells Fargo.

Do you qualify for federal subsidized loans?

[Knee Deep in Water Chloe]

I cannot seem to find info about caps, Archie.
www.wellsfargo.com/student/rates

Thyme, this is a one year program to be completed from June 20, 2011 - May 30 2012. I will consider starting my doctorate in 2013/2014.

[thyme4change]

At 11%, I'd pay down the loan first.

[swamp]

What is the program you are taking, and what is the earning potential after you get your degree? Are you going to an accredited school? Are there any grants available through the school?

[Knee Deep in Water Chloe]

Now, I have read the other threads today, so please don't get into "bashing" with my choice here.

I am a teacher. I already have a Master's degree. I am going to get my Initial Administrator's license.
Once I get an admin job, I will have an instant $20k salary increase.
Yes, I am going to an accredited school. However, in my state, there are no grants for graduate work.
Because I am not getting a "degree" and only a "license" I cannot put these with federal student loans.

[swamp]

Gotcha.

How's your budget look for paying off the loans faster than the 15 years?

I'd do the variable and pay it down as fast as I could.

[Knee Deep in Water Chloe]

Jun 17, 2011 13:53:33 GMT -5 thyme4change said:

At 11%, I'd pay down the loan first.

Does that mean you'd pick this one because it would make you pay it down more quickly?

[swamp]

Jun 17, 2011 14:03:08 GMT -5 Knee Deep in Water Chloe said:

Jun 17, 2011 13:53:33 GMT -5 thyme4change said:

At 11%, I'd pay down the loan first.

Does that mean you'd pick this one because it would make you pay it down more quickly?

Yes, and it doesn't look like interest rates are going to skyrocket anytime soon.

What's the "variable" part on it? Ceiling? Floor? Maximum rate change per year?

And you said it's $13K over 15 years? That's like $100 per month. You should be able to easily double the payments if you're already an employed teacher.

[Knee Deep in Water Chloe]

Jun 17, 2011 14:02:35 GMT -5 swamp said:

Gotcha.

How's your budget look for paying off the loans faster than the 15 years?

I'd do the variable and pay it down as fast as I could.

Budget is tight; real estate crash was not kind to us--not devastating, but not kind.

Under the huge assumption I'd get an admin job quickly, the loan would easily be paid down in less than 15 years. Easily ten--also assuming we (he) can avoid lifestyle creep.

[IPAfan]

I'd go with the variable rate. If interest rates spike then you could probably do a balance transfer to a CC.

[haapai]

Could you at least find information about when and how often the rate adjusts? What's it tied to?

[Knee Deep in Water Chloe]

Variable Rate
Interest APR
Minimum: 3.5 3.402
Maximum: 9.990 9.242
Rates are subject to change daily

[Sum Dum Gai]

Looks like the max on the variable is lower than the fixed rate, which would make it a no brainer. I'd double check that, but if it's true, the choice is easy.

[Knee Deep in Water Chloe]

I thought you had to add the two columns together and that was the total for the Variable Rate?

[Knee Deep in Water Chloe]

That chart did not line up well. I'll try to adjust it.

[Knee Deep in Water Chloe]

It does not want to line up the way it is on the WF site.

[Sum Dum Gai]

I thought you had to add the two columns together and that was the total for the Variable Rate?

You might be right, that still puts the variable at a max of 13.49% and the fixed starts at 11%. I'd probably opt for the lower variable and gamble that it doesn't go all the way up. The downside risk is only 2.5% basically, and you save 4.25% up front for sure.

[haapai]

There are some neat little spreadsheet tricks that you can do to examine the behavior of the minimum monthly payment. Once you figure out what the base rate is, you can create a spreadsheet that mimics the worst possible scenario imaginable.

I suspect that as long as you have a couple of cheap years in the beginning of the loan and pay the same amount that you would with the fixed rate loan, your payments should not get too scary. Keep in mind that a fixed-rate loan tends to keep the same minimum payment no matter how much extra you pay on it. A variable-rate loan will adjust/give you credit for those extra payments every time the rate changes.

FWIW, this exercise is a lot more fun and easier to examine with ARMs that only adjust once every quarter and have limits to how much they can go up each time.

[haapai]

It won't line up nicely no matter how much you fuss with it. I've tried everything short of manually inserting single spaces and driven myself buggy. I don't know why it looks nice on the screen and terrible on the post.

If the index on which the variable rate is based doesn't change very often and usually goes up by only a quarter point at a time, you can do the exercise with quite a bit of confidence.