FA types - take all offered Federal loans/refuse some/refuse all?

Paying for College
1

<p>I'll preface this by saying that we are very lucky to have a lot of home equity available through HELOC, so we're not trying to bilk anyone just trying to do what is best for our son.</p>

<p>We just got an FA package from my son's ED school. The merit aid was 10K less than the NPC predicted, but there were Federal loans to make up some of the difference. Frankly, we had no idea he would be eligible for that much need-based aid, but we are as sure about our CSS Profile numbers as we could be.</p>

<p>When we look at him taking out loans, and student loan rates, we are wondering if he should refuse all or some of the loans because we have a lower interest rate available on HELOC.</p>

<p>Questions are:
- if he refuses any Federal loan, is he refusing it for all four years? Or if circumstances change, could he ask for a reassessment?
- can he refuse an unsubsidized loan, but then take the Perkins and subsidized loan?
- if he took all the loans out, and paid them back on time or early, with our help if necessary, would that be building his credit rating so be a good thing long-term for him?
- on that note, is there a prepayment penalty on any Federal student loans?</p>

<p>The school mentioned that usually CSS Profile is only filled out once, but FAFSA must be filled out yearly. We therefore expect the amount to stay the same for four years because the home equity change would only show up on the CSS Profile.</p>

<p>Thanks!</p>

2

<p>It’s totally up to you. </p>

<p>The HELOC is a loan in the parent name…and it is against your home. </p>

<p>The Direct Loans are in the student’s name.</p>

<p>In this family we opted for the Direct Loan. The bank of mom and dad was paying a lot of the college costs. We did t want to extend ourselves loan wise. The direct loans have a number of repayment options…and the Mai um amount over four years is $27,000…which translates to about a $300 a month payment for ten years.</p>

<p>After graduation, when you no longer have any college bills, you can offer to help repayment.</p>

<p>The HELOC, however, will be YOUR bill.</p>

3

<p>The government loans are awarded year by year, and you will have to complete FAFSA each year. You can take any part of the loans you (really son) wants. If you only take the subsidized portion, you would owe the amount you borrowed (there is an origination fee) once he has been out of school at least 6 months (graduation or not). It’s a pretty good deal if you need it.</p>

<p>Even if you refuse the loan for the fall, you can ask that it be reinstated for the spring. If he takes out the loan and you immediately repay it, it will only help his credit rating a tiny bit because part of the credit score is the length of time the credit has been in repayment status. Someone who pays a bill on time for 5 years gets more points than someone who has paid for only 3 months. It doesn’t hurt, and every point helps, but don’t expect his credit rating to soar to 800. There is no prepayment penalty.</p>

<p>You/he may qualify for a tax deduction on the student loan interest (a big ‘may’), but the HELOC interest will most likely be tax deductible for you and husband.</p>

4

<p>As you know if he takes the sub and the perkins loan that the interest is paid by the federal govt while he is in school. IF you pay it off, that you are getting the money interest free.</p>

<p>Loans in his name are also eligible for IRB (income based repayment). In addition if he works in a public interest job and makes 10 years of consecutive loan repayments, the balance of the loan is forgiven</p>

5

<p>My kid took the subsidized loans, but not the unsubsidized ones. She was still offered both the next year. Regarding the profile… interesting that they don’t continue to collect. Both my kids’ schools want it every year, although D2’s school let up on the non-custodial parent after sophomore year.</p>

6

<p>Thank you all for the info, it has helped a LOT!<br>
So, if I understand correctly:

  • he should at least take the Perkins and subsidized portion, and that won’t jeopardize his Federal FA offers in the future, if he refuses the unsubsidized. (We have other kids, so we would rather not pay maximum for him and be short/stressed for the others.)
  • Federal loans have income based repayment, so he hopefully won’t even need our help to repay, if he gets a lower-paying job than expected (reference other younger kids again!)
    -he should pay off the loans monthly to build his credit rating, he should not pay them off at once no matter what
  • we’ll have to refile FAFSA each year, and since my income will go done quite a bit next year compared to this, that will show up in the FAFSA </p>
7

<p>taking or not taking the federal loans has no effect on the next school year. Each year is independent of the others (except there is a max amount of ~$50k). Take the Staffords, don’t take them, doesn’t matter for next year. Yes, the FAFSA is required every year for government loans.</p>

<p>There are lots of ways to build up a credit rating. I wouldn’t take out a loan, or pay out a loan long term, just to build a credit score. In the future your son will have car loans or other consumer loans. Building a credit score is a very very small benefit to paying a student loan. Pay it off in the best financial way for you/your son.</p>

<p>Federal loans can have IBR, but that is really only a big benefit if he is in a public service job as then the balance after 120 payments (10 years) will be forgiven. If not in a public service job (and there are many that qualify), the balance won’t be forgiven for 25 years, and at that point it’s a taxable forgiveness. Nice not to worry about having a big payment in the early career years, not really great that interest keeps accruing if you are paying a small amount each month.</p>

8

<p>Here is a short explanation of credit scores and student loans.</p>

<p><a href=“How Do Student Loans Affect Your Credit Score? | The Motley Fool”>http://www.fool.com/investing/general/2014/12/14/how-do-student-loans-affect-your-credit-score.aspx&lt;/a&gt;&lt;/p&gt;

9

<p>The balance is between us taking out additional loans, and we already have an excellent credit rating and lots of home equity to access (for him as the eldest, it will decrease as each child goes to college of course), and him taking out loans, and he has no credit history at all (but colleges appear not to care about that). We did not save up for our kids’ college because it did not make fiscal sense for us (YMMV, I’ve been yelled at already on CC).</p>

<p>It’s not like we are comparing him getting a loan and us paying out of some sort of pot of cash that would count as an asset anyway. The main difference is the interest rate (lower for us, from 1 to 2% depending upon the loan type he’d get, probably consistent as the rates, Federal student loans and major bank HELOC, all link to prime). </p>

<p>And the other difference is that he doesn’t have any moral obligation to pay for his siblings’ college, even if we made it so he didn’t need any loans at all. If the 30K+ comes from us, that’s 30K not available for his siblings, and by the time the last one enters college, that amount will matter (and so on for each one). But helping each of them pay back their student loans, with that extra money “in the bank”, will be more doable than it just not being there at all.</p>

<p>That link is very good and I think is true about the HELOC as well - minimum payment is interest or even less, but we have to pay more to pay down how much we owe on our house. Since we got our credit rating up pretty good before we got a mortgage, from car loans and credit cards I guess, we prepaid our mortgage before we had kids, by doubling our monthly payment. Car loans are set, insurance payments are set, tax payments are set, but HELOC has a low minimum and we can choose how much to pay over that. We will start worrying about the term when the youngest enters college, that might require some refinancing.</p>

<p>I know that at 21 my spouse got a car loan with great difficulty and at a high rate due to no credit cards or other credit history in college. Without being able to quantize it, the more we think about it, the more we think they all need to pay their share, even if it is higher interest than we’d pay, so that they all can attend the school of their choice (within reason). Unless they can score bigger scholarships than my eldest (he did well, but not as much as the NPC predicted) or target less high-end schools.</p>

10

<p>Did you call the FA office of the school to find out why the FA offer was $10k lower? I did this and it turned out the admissions office, which actually does the merit aid, had not updated scores as they came in. This school uses gpa/scores/class rank to determine the merit scholarship level, so as soon as they updated the scores, the merit aid went up.</p>

<p>I had played with the NPC so much that I was pretty sure she had earned the award at the next level, and I was right. The chart isn’t published, but by playing with the NPC I could tell it was the scores that were causing the lower amount award.</p>

11

<p>

</p>

<p>You can work any job and have IBR as your loan payments will be based on your income. </p>

<p><a href=“http://www.ibrinfo.org/what.vp.html”>http://www.ibrinfo.org/what.vp.html&lt;/a&gt;&lt;/p&gt;

<p>Loan forgiveness comes with working 10 years in public service and making 10 years of consecutive loan payments.</p>

12

<p>loan forgiveness can also come at 25 years of payments, but then, unlike with public service forgiveness, the amount forgiven is taxable.</p>

<p>You can have IBR with any job (or no job) but all you are doing is extending the payments and accruing interest. With a public interest job, it is actually a benefit in that you may never have to pay the loan amount as they will be forgiven after 120 payments. That’s what I meant by ‘big benefit.’ It might be nice to have lower payments under IBR, but in the long run it’s just paying more in interest.</p>

13

<p>I don’t even necessarily recommend the public service loan forgiveness program, as there is rarely a guarantee you will be in the same public service job for 10 years. It is a big risk to take, especially if one was to be offered a higher paying position in the private sector down the line. IMO, it is safer to stick with the standard 10 year repayment if one can afford it and get those loans paid ASAP. </p>