<p>Okay, so I'm in a predicament. I was accepted and want to attend the University of Oregon next year. Well, I filed my fafsa. However, my dad received a bonus that is given to him in two parts. This year, and next year. However, that money is gone since my parents used it to pay off our house. Therefore, the fafsa shows we have money, and we don't. That's whatever. But all of my aid was loans. About 20,000 a year to my parents and 5,000 in my name. 7.9 fixed on my parents 20,000 dollar loans. They have 24,000 in savings. The EFC is right under 15,000. They're credit score is outstanding. Great. Am I better off getting private loans with a variable rate? Any opinions? I have no other school. Oregon is it</p>
<p>They paid off the house, so that frees up some cash every month, right? With an outstanding credit score and home equity, they can surely do better in the private market than federal loans. They can do much better than 7.9% fixed. I think you are fine. You could refuse all of the school aid except for subsidized Stafford loans, if those were offered. Hopefully, U of Oregon is in-state for you.</p>
<p>No, I am out of state. Total costs are $41,000.</p>
<p>15,000 EFC. But after everything, we’re looking at 100,000 in loans for 4 years. With interest, that sucks. If we take the Federal Plus loans, my dad has to work until he’s 80. I refuse to let that happen. But my mom is completely anti-variable rate which is the problem with the private loans. I looked into the Citi loans and they have a range between 3.65 to 9.81. What are the odds that that interest rate will rise above 8? Is that highly probable? I’m so scared that I won’t be able to go.</p>
<p>You need to run all of the numbers for the various places you have been admitted through a calculator like this one: [FinAid</a> | Calculators | Advanced Award Letter Comparison Tool](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>
<p>That will help you determine which of them are truly affordable. Right now, it looks like U of O may be out of your price range.</p>
<p>Your parents do not have to take the full amount offered in loans, and they can prepay PLUS loans without penalty. As they have paid off the house, are they able to afford the equivalent of a monthly house payment? Let’s say that your parents can afford to pay the equivalent of $12,000 a year toward college. ($1000/month) </p>
<p>If they borrow $20K in the first year, their monthly loan payment would be $240, which is under $3000 for the whole year. Instead, however, they can pay $10,000 toward college (sign up for a tuition management plan with monthly payments if they can’t come up with the cash) – and borrow the other 10K, with a monthly payment of $121.00 ($1452 for the year – or, $11,452 for the year. </p>
<p>So after year #1 there is $10,000 in debt.</p>
<p>The next year, after accounting for their $145/month loan payment, they’ve got roughly $10,500 to pay on college. So they pay $9000 up front, borrow $11,000. Now they – pay another $8000 directly, borrow another $12K, and with their continuing loan payments from the previous year ($3048) for the year --or $11,048 out of pocket. </p>
<p>Year 3, with they’ve got $8000 available after the loan payments, and have borrowed $21K – and so now they pay $7000 to the school, borrow $13,000, and are looking at a monthly loan payment of $410 ($4920) – added to the $7K they’ve paid out of pocket, they still are coming in at under $12K out of pocket for the year.</p>
<p>Finally in year #4, they’ve got $34K in pre-existing debt, so they can now only pay $5000 up front to the school, and borrow the other $15K. That will bring them up to $49K in debt and a monthly payment of $591 (7,092 for the year).</p>
<p>Then you graduate, they’ve borrowed $49K, have monthly payments of $591, but don’t have to pay for you to attend school any more. Since they can afford $1000 a month, they start paying $1000 monthly instead of the $591. That would have the loan payed off in less than 5 years after you graduate.</p>
<p>The math actually works out better than that because (a) they are paying down the loans as they take them, so when you graduate after 4 years, their net debt will be less than the $49K in the example; and (b) their loan payments each year don’t actually begin until after the final disbursement for the year, usually in February or March - so they actually have a little more cash on hand to available for payments during the first half of each school year.</p>
<p>Of course, they don’t have to take a PLUS loan. In their situation I think a HELOC would be fine, because obviously they have plenty of equity in the paid-off home. </p>
<p>Even with the PLUS loan, however, if you do my math in the above example, they are paying far less in interest simply because I’ve set it up so that they borrow less, and pay down the loan faster.</p>
<p>Calmom:
I think you’re figuring for instate. I’m out of state. So it’d be more like 100,000 in debt.</p>
<p>No, I was simply working with the figure you provided of $20K annually in PLUS loans, and looking at how to finance that part. If you are considering the $15K EFC as well – then the numbers change. It begins with the question, how much can your parents afford on a monthly basis? I was just trying to show how the money can be reallocated over time to reduce the overall amount of borrowing.</p>
<p>Your parents made a decision to use bonus money to pay of their house in the years right before you started college, rather than to keep it in reserve to help pay for college. You made a decision to apply to an out-of-state public where you were unlikely to get much need based aid and would have to pay additional tuition. Objectively, those are not very smart financial decisions to make, but I will assume that you and your parents had your reasons for those choices. But now you have to work with them. </p>
<p>The one thing that works in your favor that I see is that your parents have additional discretionary income because they don’t have to make a house payment. The part that I don’t know is how much their house payment was or what their home equity is – or, for that matter, what their earnings are. I’m not asking for that info - it’s none of my business. But those are the figures you need to be looking at.</p>
<p>If it’s not in state, there is no justification for borrowing $100k. What was your best in-state choice? It sounds like you and your parents are in position to pay for that.</p>
<p>BTW, it was probably a smart move paying off the house, at least from the FAFSA viewpoint. Maybe I’m reading between the lines too much, but it looks like they’ve done a good job preparing for a flagship in-state school.</p>