<p>I know someone who is financing college for her kids by cosigning private loans. I'm concerned she'll run out of borrowing power. Income is probably around 100K. I think she must be taking out at least $20,000 per year with her eldest, and is getting ready to launch another next year. This is after maxing out the Stafford loans. Is it possible (likely) that she will be unable to borrow? What might be the maximum?</p>
<p>It is very likely that she could run out of borrowing power before her kids are done with school.</p>
<p>However, if she is borrowing against her home or has other assets, some banks may feel that she’s worth the risk.</p>
<p>There isn’t a set maximum because each person is different…different income, assets, credit rating.</p>
<p>Many people forget that each year they borrow/co-sign loans, their credit gets hurt, which makes it harder to borrow the following year.</p>
<p>This lady isn’t doing her kids any favors by co-signing these loans. She should be “the adult” and realize that she’s setting her kids up for an adult life burdened with debt.</p>
<p>Thanks, M2CK, I have tested the limits of our friendship trying to get her to reconsider. I even suggested she find out from the lender how far down this road they will go with her, but she seems to not want to face it. They have a house with a mortgage and a car loan that I know of. Very little retirement that they are not contributing to at the moment, and no other investments or debts. </p>
<p>I have come to understand that this is an irrationally emotional issue for my friend. To not enable her children to go to their school of choice is to completely fail as a mother. I am going to keep pushing her to at least spell out the consequences to her D.</p>
<p>^^^</p>
<p>At a minimum, I would hope that they have considered…</p>
<p>1) what each of their children’s monthly payments will be when they graduate.</p>
<p>2) How much each child will be earning as newish grads.</p>
<p>3) That their children may not find jobs in their hometowns and therefore may not be able to live at home for free while paying off huge debt.</p>
<p>I think she must be taking out at least $20,000 per year with her eldest, and is getting ready to launch another next year. This is after maxing out the Stafford loans.</p>
<p>For example…</p>
<p>If each child takes out the max Stafford ($27k), those payments will be…</p>
<p>Loan Calculator</p>
<pre><code>Loan Balance: $27,000.00
Adjusted Loan Balance: $27,000.00
Loan Interest Rate: 6.80%
Loan Term: 10 years
Monthly Loan Payment: $310.72
Number of Payments: 120
Cumulative Payments: $37,285.87
Total Interest Paid: $10,285.87
</code></pre>
<p>Note: The monthly loan payment was calculated at 119 payments of $310.72 plus a final payment of $310.19.</p>
<p>It is estimated that you will need an annual salary of at least $37,286.40 to be able to afford to repay this loan. </p>
<p>If in addition to the above, the student is borrowing $20k per year ($80k total), then…</p>
<p>Loan Calculator</p>
<pre><code>Loan Balance: $80,000.00
Adjusted Loan Balance: $80,000.00
Loan Interest Rate: 8.80%
Loan Term: 10 years
Monthly Loan Payment: $1,004.77
Number of Payments: 120
Cumulative Payments: $120,571.89
Total Interest Paid: $40,571.89
</code></pre>
<p>Note: The monthly loan payment was calculated at 119 payments of $1,004.77 plus a final payment of $1,004.26.</p>
<p>**It is estimated that you will need an annual salary of at least $120,572.40 to be able to afford to repay this loan. **</p>
<p>So, when you combine the loans (stafford and private), the student will have about $110k in debt. The combined payments ($311 + $1005) will be over $1300 per month for TEN LONG YEARS. Does your friend realize that?</p>
<p>How much does she think her kids are going to be earning upon graduation?</p>
<p>Well, D1 is a psychology major. Obviously there is a lot of denial here. Seems like it might be a blessing if they finally get turned down for any more private loans before D2 is a freshman.</p>
<p>If that were to happen it would sadly happen after d2 had selected her school.</p>
<p>juniebug, I have been down that road before with friends and colleagues…it’s tough to see the train wreck coming but there’s no reasonable way to make people face facts that they’re avoiding. Your friend obviously knows how loans work, her kids would have had to go through the mandatory loan couseling to get their Staffords, and there are all kinds of sites offering loan info and calculators. Some people will postpone facing the inevitable until it slaps them in the face. Sad, really, but it sounds as if you friend has made the decision to wait for that day.</p>
<p>This reminds me of when a single mom a couple of years ago came onto CC, shocked at how low her daughter’s aid offer was at her OOS “dream” college despite her very low EFC. Mom was determined to make it happen for her daughter and decided to borrow heavily for the first year using private loans, despite everyone really trying to convince her it was a really bad idea. The next year, or maybe after 2 years, she was back asking for advice on how to keep her daughter in the dream school as the private lenders would not lend her any more $$$ because they had loaned her all they were willing to based on her income. It was so sad. A bunch of debt she could not afford, and her daughter was probably not going to be able to graduate from the school. </p>
<p>So yes, it does happen. Your friend has high income so will probably be allowed to dig herself a pretty deep hole before the lenders decide she is in enough debt to be no longer a good risk. Difficult to say when the lenders will say no more. Unfortunately it sounds like the blinkers are firmly in place.</p>
<p>Thanks for the replies. Sigh</p>
<p>Is there anyway that you can suggest with her to start D2 at a cheaper school and only transfer/borrow for the LAST two years? Going into heavy debt is bad, but if you had to choose it’s better to graduate from a more expensive school than to start at a more expensive school and then have to transfer to another, cheaper school to graduate because in the latter case you get the Expensive School’s debt and the Cheaper School’s degree/reputation, which no one really wants to get for 2/3x the price.</p>
<p>I’ll be the odd man out here. I agree that the projected loans for this family are not terrific. BUT that is their business. You’ve given your opinion and the mom has not listened. If you want to remain her friend, I would say…be a good listener and only offer advice that is asked for. This mom has made a decision…discussing family finances with a friend…and costs and budgets…is something that should (in my opinion) ONLY be done if the other party asks. </p>
<p>I know you really care about your friend but it sounds like you’ve already given her some information. This is their decision…you know…not everyone makes good financial decisions, and some find out too late (as Swimcatsmom pointed out).</p>
<p>Frankly, I’m wondering if an adult that is this “out to lunch” about college debt may have credit card debt and/or fancy-car debt. This just doesn’t sound like a person how has been able to say “no” to her children very often. That often translates to other debt as well. Someone with a $100k income isn’t really making a lot of money if they have a good mortgage, car loans, and other debt. </p>
<p>I agree that Drakemom’s advice is good, but I just don’t think a mom like this is going to tell Child #2 that she can’t go to a dream school while sending Child #1 to one. </p>
<p>If both kids end up at schools that meet need, they may be hoping that with 2 in school, they’ll get great aid next year. However, if one or both kids are at schools that gap, then they might be in for a major shock.</p>
<p>Yes, I think I’ve done all I can without risking our friendship. This friend is no dummy. I am starting to see this in the context of an emotional problem. She has to do this. I told her I would never cosign anything for my kids, and I think she was surprised because we are so alike in most ways. I realize this is her problem, but I’m sick at heart that her girls are going to pay the price.</p>
<p>*but I’m sick at heart that her girls are going to pay the price. *</p>
<p>That’s the saddest part. If the mom was going to be responsible for the loans it would be one thing, but the fact that she’s irresponsibly burdening her kids is another.</p>
<p>In the end, her Ds will not likely be able to afford to pay these loans back, and she will be responsible (does she really realize that)? The older D is going to need a grad degree if she plans to work in some kind of psychology field…so more debt!</p>
<p>Is she married? What does her H say about all of this?</p>
<p>Well, honestly, the mom isn’t burdening her kids with loans…the kids are doing it to themselves with the choices they made! College-aged kids are old enough and smart enough to figure out that borrowing Stafford and private loans in their own name is going to result in loan payments. She isn’t initiating the loans, only agreeing to co-sign for them. Presumably they know they will be responsible for payments, otherwise the parents would just take a loan in their own names. With all of the news stories on student debt, online loan calculators, loan counseling, and disclosures, it’s tough to feel sorry for the kids in this case. It may be a wake-up to all of them really but nothing they shouldn’t have seen coming!</p>
<p>^^^</p>
<p>I hear what you’re saying. However, most teens will believe their parents if their parents tell them that this is OK to do. </p>
<p>I know if I had told my oldest son that is was ok for him to borrow that much money, he would have just believed me - especially if it meant going to some school that he always wanted to go to.</p>
<p>Even if a teen “does the math,” it can be rather meaningless. Many teens have no clue about how much is paid in fed/FICA/state/local taxes and such. Many teens think that if they get paid $40k per year when they graduate that they will have $40k to spend that year. </p>
<p>They think that if out of that $40k, they have to pay $15k per year in loans, then they will still have $25k to spend.</p>
<p>Exactly! I think it would be the rare 17 year old who could distinguish between reasonable debt and disaster. Friend’s H is an engineer, so I assume he has done the math. I’m guessing it is magical thinking that something will be different when the bill comes due, like a higher income or winning lottery ticket. I am shocked that they are able to borrow so much money, actually.</p>
<p>Student loans are the biggest trap. Do NOT take out any student loans.</p>