- July 17, 2017
- Posted by: Travis
- Category: Dentist
If you’re financing your dental school education, chances are your school is offering you Grad Plus loans as part of your financial aid package. If you owe so much that you’ll never be able to pay back your loans, then Grad Plus can be ok. However, many dental students though are losing thousands of dollars in interest by not choosing the lowest cost route to finance their education.
If you’re planning on refinancing and paying everything back, Grad Plus is terrible. We’ll look at who should be replacing their Grad Plus loans with lower cost private dental school loans instead. I suggest checking out CommonBond and LendKey to see if you could get a better deal than what your financial aid office is giving you.
Why Can Grad Plus Loans Be So Costly to Dental Students?
Not only do you have to pay above market interest rates with Grad Plus, but you get tagged with a massive origination fee too. If you’ll owe less than $350,000 coming out of dental school, this article could save you more than $5,000 in interest.
The federal government sets the interest rate for the coming school year on Grad Plus every July. They add this huge margin of 4.6% on top of the treasury rate. That’s why if you take out a Grad Plus loan this year for dental school, you’ll pay 7% in interest. In the future, years, new loans could be at an even higher rate.
That’s not the worst part though. On top of the high interest rate, the government charges you an upfront fee of 4.27% of the total amount borrowed. Think about that for a moment. You borrow $100,000 for dental school and before accounting for the interest, you’ve already lost $4,270.
There are alternatives to using Grad Plus that can save you a lot of money if you’re still in dental school. However, first I want to make clear who should actually use Grad Plus.
When is Grad Plus Actually OK to Use?
If you’re coming out of dental school with more than $350,000 in student debt, it’s not a sure thing that you’re going to pay it back. With that debt load, you want to take a look at your expected future income, family demographics, spousal income, whether you’ll own a practice one day, and more.
Additionally, if there’s any chance you might use the Public Service Loan Forgiveness program, you do not want to be using private loans. Only federal loans receive this tax free forgiveness benefit after 10 years. Very few dentists end up lasting 10 years at a not for profit, but it’s important to mention at least.
My rule of thumb is if you’ll have a household student debt to income ratio below 2 within 5 years of graduation, then refinancing is the way to go. Otherwise, you need to use PAYE or REPAYE and optimize the forgiveness programs. Well over 100 dentists have hired Student Loan Planner to figure this out for them, so hopefully you know this advice isn’t coming from some random dude on the internet.
Basically, if you’re going to owe more than $350,000 level I mentioned, I wouldn’t feel 100% confident in recommending you use private loans to replace Grad Plus. However, if you’re coming out with less than $350,000 from dental school, then actually repaying your loans is probably the best decision.
If you can use private loans to lessen your bill from dental school, that could represent a couple months’ salary that you get to keep instead of use towards extra student loan interest in Uncle Sam’s pocket.
Wait, What About My Stafford Loans? Should I Use Those?
There’s a couple reasons why I actually encourage folks to use Unsubsidized Stafford Loans in their aid package instead of private student loans. Stafford loans this year will have an interest rate of 6%. That’s about what you might get from a fixed rate offer from one of the private lenders I work with.
Additionally, the origination fee is only about 1% of the principal balance for Stafford loans. That’s way cheaper than Grad Plus, and even cheaper than some of the private lenders out there.
Additionally, with Unsubsidized Stafford you still have access to income driven repayment plans. That’s why I don’t suggest that you try to replace your Stafford loans with private loans unless you’re willing to take a risk by choosing a variable rate that might be cheaper long term.
An Example to Illustrate How Using Private Loans Instead of Grad Plus Can Help
Let’s say Jane goes to University of Louisville’s dental school and gets an offer for $20,000 in Grad Plus each year in addition to other federal loans. Say her alternative is using a private loan from a company like LendKey or Commonbond with a 6% interest rate.
Grad Plus costs her 7% a year along with the 4.27% origination fee. Let’s look at the difference if she uses private student loans or if she just sticks with the federal Grad Plus offer.
At a total difference of $4,758, that’s probably worth her time to use the private loans instead. Keep in mind that this is a modest amount of borrowing compared to what some dentists borrow. If you’re looking at using more Grad Plus that what I listed here, just multiply this interest difference by the ratio of your yearly borrowing divided by $20,000.
How do Private Loans Work in Dental School?
I’m most familiar with the two affiliate partners I work with in providing dental school loans, so I’ll talk about them. This site gets paid if you use these referral links, so I wanted to make it super clear who should be using these links to see if they could save money.
LendKey: Low Variable Rates, Decent Fixed Rates, and No Origination Fees
Let’s start with LendKey. This company searches rates with a bunch of local banks and credit unions to find the best private loan deals. One big plus with LendKey is that they charge 0 origination fees. That favorably compares to the 4.27% origination fee charged by the federal government’s Grad Plus program.
About 90% of dental students who apply to LendKey are going to need a cosigner. For the most part, that means mom and dad.
A lot of parents want to help with the cost of grad school, but they want it to be your responsibility long term. Many don’t have the kind of money laying around to cut a check for $50,000-$100,000 each year.
Downsides and Upsides of Going with LendKey for your Dental School Loan
Using a private loan and cosigning means they’re on the hook for your loan if you fail to pay it back. That’s the downside.
The upside? Instead of 7% with Grad Plus, you could be looking at rates as low as 2.99% variable and 4.99% fixed. I expect most people with credit worthy cosigners would get something like a mid 5% to low 6% type of offer.
You’ll have a total of 5 years from when you first take out the loan or 6 months after you graduate to start repayment. If you’re in your first year of dental school and might do a multi year residency, you probably want to wait until the D2 or D3 year to use a private loan.
Otherwise if you’re just planing a 1 year AEGD or GPR type program, going straight into practice, are already past your D1 year, then using LendKey could really help you.
Since most of the partners on LendKey’s platform are regional banks and local credit unions, they primarily care about credit score to get a good deal. So click on the button below and see what kind of savings you could get.
CommonBond: Solid Fixed Rates, Low Origination Fee, Forbearance Protections
CommonBond is one of my favorite companies to work with. Partly that’s because they save so many of my clients and readers money. Another reason is their social promise, where they fund a child’s education abroad.
To date, they’ve paid for over 2000 kids to get a quality education in developing countries. While that’s awesome, obviously you only want to use their product if it helps you.
Upsides and Downsides of Using a CommonBond Dental School Loan
The primary benefit I see with using CommonBond is that they offer some protections in case you run into a rough patch post dental school and can’t pay for a few months. Most private lenders don’t do that.
CommonBond is going to be consistent in offering pretty solid fixed rates that start with a 5 something if your credit is good. They care more about cash flow left over after monthly expenses.
So I would check both of these companies and see which one gives you a more favorable rating with a lower interest rate.
One downside with CommonBond is they have a 2% origination fee. However, what matters most is the APR that’s offered to you because that includes all fees and you can compare the two companies on equal footing.
Whoever has the lower APR, that’s who you should go with for your private loan. CommonBond requires a cosigner, so if you’ve got a parent or family member who will help you out, check out your rate with them by clicking on the button below.
Cut the Cost of Dental School Every Way You Can
Dental school tuition is crazy high. That’s why if you go to a lower cost school and expect to come out with less than $350,000, you could save thousands in interest by using a private student loan instead of Grad Plus.
Cut the crazy high origination fees and interest rates and go with a lower cost alternative if you can. Otherwise, you’ll be optimizing your life for loan forgiveness for several decades.