<p>You have a 30 year home mortgage or had one?
Have a car loan. Statistically your first car loan will be a forever loan because by the time you pay off that loan, you go out and buy a new car with another loan.</p>
<p>Loans can be good or bad, its just where you are coming from and what you are planning to do with that loan.</p>
<p>This thread is making me nervous. We took out a PLUS loan for our daughter's first year costs, although we could have probably paid up front. We did it because the interest rate was low with an even lower rate for automatic monthly payments, the payback period was long and could be extended, and the loan is forgiven upon the borrower's death (my husband is the borrower, not that I'm wishing him an early demise) Am I missing something? Does anyone have any information/experience with PLUS loans?</p>
<p>momjd, I am sure you are fine.
The kids that are coming out of college with large student loans are having some problems.
Parents that are jeopardizing their retirement may have problems.</p>
<p>so what do you want to know?</p>
<p>is your PLUS loan in your H name or in a joint (H and you)?</p>
<p>Momjd - there's nothing wrong with a loan if you can afford the payments. I also have a PLUS loan that, in hindsight I didn't need. I still have it - I could easily pay it off in full if I wanted, but the payments are low & the interest is low - so I'd rather conserve my assets. For example, itstoomuch mentioned car loans -- for the amount of the remaining balance on my PLUS loan, I was able to purchase a used car for my daughter, for cash -- so I don't have "forever" loans on cars. One reason I took the first year PLUS loan is that my credit was kind of iffy at the time - I wasn't sure I would qualify, and once I did, I wanted to grab the loan for the sake of having what was essentially an open line of credit for both my kid's college educations. </p>
<p>I haven't had any problems at all with the loan -- at least when you are making payments on time, SallieMae is the most hassle-free lender around -- and there are all sorts of safeguards that come with a student loan that can protect you in the event of future problems like disability or loss of income. </p>
<p>But parents who get a PLUS loan KNOW what they are getting into. You should know what your income and assets are. I don't think it's a good idea for a lower middle class single parent earning $35K a year and no assets to borrow $75K in PLUS loans to finance the kid's college, but I DO think it's perfectly fine for the upper-middle class family making $100K a year and with another $500K in home equity and retirement funds to borrow $150K in PLUS loans rather than dip into the home equity or leave themselves strapped by trying to pay full college expenses out of current income. It's just a matter of allocation of debt & income. </p>
<p>The point is that if you can take your total assets + income and subtract out the total debts, and still have a positive number -- you have a positive net worth and you can probably handle the debt you take on. If you also have good credit, then you are in an excellent position -- the loan is simply part of your overall financial plan to spread your college expenditures over 15 years rather than 4. Depending on your age, this can work out very well -- ideally, you should be done paying off college loans by the time your retire. Especially important if, for example, taking the loan means that you can use current income to continue funding a retirement account, and invest those funds appropriately. </p>
<p>The problem is when people get in over their head -- and its the same story whether it is student loans or credit cards, except that the student loans cannot be discharged in bankruptcy. But either way, its important for debt to be in an amount where the monthly payment is easily manageable. (I pay my PLUS loan automatically from my checking account, and truthfully I don't even notice the payment going out - for me, it's less than a week's worth of groceries.)</p>
<p>Thanks to all, I feel more relieved now. Calmom, you stated our rationale and situation pretty succinctly. For our situation, the PLUS loan just seemed like a good way to conserve/reallocate current assets and income and spread college costs over many years. I was also pretty surprised that the loan is discharged upon the death of the borrower (My H alone, they didn't ask for both of us). I believe we may have the option to extend the repayment period beyond 15 years, although his age may come into play at that point and preclude that. He's a bit older than your average dad with a college age daughter.</p>
<p>What's the rate on the PLUS loans?</p>
<p>I'll still admit to being lost. I know Anna in the original piece was 24 when she started college, but I also know she didn't have a job. Whether independent or not -who loaned her or would loan her $105,000? Such amount being fully twice what I thought a student regardless of age could get under any federal loan program. Am I being told that state's (possibly like Connecticut) don't look at a student's debt load and potential ability to repay the loan BEFORE extending six figure credit to someone whose stated work history is some "odd-jobs" while bumming around Europe? It couldn't have been because of her stellar repayment history-she didn't pay anything.</p>
<p>Let me ask this another way-let's say D just has to go to elite college B costing $43,000 a year. Say further that Dad and Mom say "we can pay $100,000 on your undergrad but we won't take out any loans on top of that". D says -I still want to go to B. She can get something less than $17k under fed loan programs, right? So assuming zero aid except loans, and add $10,000 in part-time work- am I being told that there exists on the planet a lender that loans students without co-signors and without regard to work or credit history the extra $45k they "need" to go to elite school B? (In the original example Anna didn't mention a co-signatory on her notes.) </p>
<p>If this is the case, I think I'll just hide under my bed until this is all over. I was just getting used to saying "Honey, you can't really look at that school seriously as it is unlikely you'd get any aid except federal loans and without aid- we can't afford it". Now I have to say ,"well, you could take out $62,000 in loans, and save $10,000 from part-time jobs but I'd vehemently advise against it?" (Just kidding about hiding under the bed ,folks. See-I'm calm. No stress. Ponies and bunnies. Happy thoughts.)</p>
<p>Private Student Loans like Citibank's can cover your full college expenses including housing etc, however if you have no credit, you'll need a cosigner, and debt + interests don't have to be paid back until 6 months after you graduate, however your interests accumulate which is a downside, however if your cosigner is willing to pay the interests while you are in college, congradulations, however you'll still be in debt.</p>
<p>People throw around this word cosignor as if it were nothing-it means co and equal obligor, not guarantor in the event of default-co-obligor. And who do you think they come looking for -deadbeat defaulting student or Dad (or Mom) of Many Assets? If a parent co-signs the student's "private loan"-what's the point? Why didn't they just take out a plus loan to begin with , as the liability is the same? and if economics or impending retirement makes a plus loan unfeasible or unwise-why would co-signing a $62,000 private loan be better?</p>
<p>the fun for PLUS and staffords is about to end in July when the rate is reset.
PLUS and Staffords are variable interest loans so look for dramatic interest charges as contrasted to 4 years of declining charges. </p>
<p>Goal now is convert PLUS to a Consolidated loan, which has a fixed rate for a longer time period than either PLUS or Stafford. Consolidated loans are based on weighted average of the loans being consolidated. Best rate is 4% with discounts for ACH and on time payments. Same death benefit. Same method of interest calculation (simple) but longer payback period, and tax deduction from gross without itemization, and better method of payment options. </p>
<p>They say a typical consoldiation takes 6-8 weeks. Ours took 4 months and I had to really kick the process to get it done in that time period. We are unusual case and gaming the system legally.</p>
<p>READ and UNDERSTAND the disclosure on the back of application or what comes with the app when doing app online.</p>
<p>curmudgeon:
The goal is to get a quality education for as cheap as possible. Right?
Explore the possiblities, what ever they may be.</p>
<p>To your post #28. Staffords, PLUS, and Consolidated loans are subsidized by our friendly taxpayer. Take the subsidy.</p>
<p>Take the $100,000 that parents say they will pay for UG school, and place into rolling CD's. Ought to earn 3-4% shortterm investment money. Get PLUS and Stafford loans at 3-4.5% interest-simple. Use the interest/gains/dividends to pay interest on loans.
Taxation will be pretty much a wash because although you will be taxed on investment, you will be able to deduct loan interest on student loans. </p>
<p>This illustration shows you how to use other peoples money (OPM), use your money to make better financial decisions, increase or preserve your cash flow, have a no cost death benefit, hedge the inflation variable, and allow you still to extinquish the debt at your time of choosing.</p>
<p>This is only an illustration. Read the fine print of the loan documents. Conditions may vary on personal circumstances and economic conditions.
See Jaminmom (everywhere) comments-they are more detailed. I'm just trying to get people to look at ALL the variables-most look at one or two and lose a lot of other opportunities. Again, our education system is very good at teaching facts but not very good at teaching money principles. PS banks are not good teachers, their only business is to get you into debt and keep you there. You can however use their rules to your advantage and thereby game the system.</p>
<p>NEVER, EVER, Cosign for a loan. Even your kid's.</p>
<p>What is the interest rate?</p>
<p>WRONG QUESTION! You lose. So Sorry. Too band. SOL.</p>
<p>What are the terms and how is the interest calculated are better questions.</p>
<p>Think about what constitutes a loan.
Then think about, if one variable changes, how does that affect you.
If two changes of variables. If all the variables are up for change.
Finally think about WHO controls the variables. </p>
<p>This may seem to be complicated but its really like any other game, in fact simpler because the rules are has always been there-its just that no one looks or asks and most won't believe the rules are in front of them.</p>
<p>Imagine the game MONOPOLY. Everyone knows how to play the game. There are many players and many rules. Suppose you find a "mark" who is from lower sloboba who doesn't understand english... Who do you suppose is going to win and who is going to lose and lose bigtime? In the loan game-who is the "mark?"</p>
<p>istoomuch - dstark asked a legit question.... back to that point a little later...</p>
<p>dstark - The current rate on PLUS loans 4.17%. The rates do get reset each July; there is a 9% cap on the interest rates. It is indexed to the latest 91-Day T-Bill rates prior to June 1st of that year, + 3.1%. The current rate on 91-Day T-Bills is 1.33 - the forecasted rate for May of this year is 1.64 - which means that PLUS loans can be expected to go up to 4.74%. </p>
<p>Going back to istoomuch's comments -- obviously, with interest rates going up, the loan may get more expensive. However, one good thing about a PLUS loan is there is no prepayment penalty. As I said above - they are a good deal for a family with adequate income & assets & good credit (and you are supposed to have good credit to qualify for the loan) -- because a family can always choose to prepay the loan. I have enough cash on hand that I could do that tomorrow if I wanted.</p>
<p>Obviously the situation is different for a family that is overextended with the PLUS loan. I do think there is a temptation to get starry eyed and figure you can charge up $160,000 for your little darling's Harvard education, without thinking about what that monthly payment is going to mean to you.</p>
<p>The consumer mostly looks at the initial cost. I tend to think about how does an entity makes money. </p>
<p>The financial institutions (FI)at current rate of interest or for that matter any interest doesn't make much money because the FI also must finance the money to give to the borrower</p>
<p>So how does the FI, make money on student loans? The interest is typically capitalized, the interest is being accrued in the loan and deferred until kid finishes school! There is no free lunch.</p>
<p>I am continually frustrated with clients who go get a refinance on their mortgage because the interest rate is low and payments are lower than current plan. What they have really done is to extend their mortgage more years, and gave away all the previous years of interest payments to the FI.
And they then go a buy a depreciating asset (SUV) with the money they pulled from home equity. (For those who live in CA, your situation is be a bit different-how long will it last?)</p>
<p>Interest rate, by itself, really has no real meaning. 4.17% is only one variable in a 5 variable equation. And a 6th variable that trumps the other 5: what are the terms and Who controls the terms. </p>
<p>Our kid who did IB,all the AP math, and doing well in college; Spent less than a day on interest problems in HS. I did the problems and got the book answers wrong not because I or the book was wrong, but because the answers were based on a different method of payment that were not mentioned. This small equation finances his schooling, preserves his inheritance, and practically everything else in his life and we hope our grandchildren. He is clueless.</p>
<p>Our current national debate on Social Security is for the most part based on this equation. What your money will buy next year is based on this equation.
Just about everything people will do is dependent on this equation and its assumption. </p>
<p>The answer is not 4.17% it is much, much more.</p>
<p>it's too much, while some people do go and buy another car as soon as they pay theirs off, not everybody does. for example, my mom kept her previous car for 10 years, before she bought a new car. and even then she traded me her previous car for my car, and she traded mine in on her new one, and i kept her old car for another 2 years, before i purchased a new car for myself. i took out a four year loan, make my payments each month while in college, and i definately plan on keeping my car for more than 4 years :)</p>
<p>My husbands truck is 30 years old, the car he drives the most is 13 years old and while I did finally dump my 12 year old car last year, my new car is only "new" to me. It is 3 years old.</p>
<p>Fendergirl: Same here. but mostly you are the exception to the rule. I would imagine alot of the parents on CC are of like thinking. I also hope that most people go out and buy newer cars and be indebted forever because we need to keep industry (all) cranking out what ever they do (even college graduates).</p>
<p>My wife wants to trade me in. She doesn't because she's afraid in getting a bigger lemon. sigh. </p>
<p>For those people who wish to study economics; I hope you are beginning to understand why economics is not in the science college but in the humanity college.</p>
<p>Thanks for the opportunity to rant and rave,</p>
<p>My niece is paying 2.38, I believe (I know it starts with a 2) for Sallie Mae loans because you get points off for paying on time.....</p>