<p>First post here and not sure if this is the right location but here's my dilemma:
I am fortunate enough to be able to pay for my D's 4 years of college. She knows this. However, I think my D views the college experience much more for its social aspects and I am concerned she will take it as a 4 year extension of her childhood (party party party) rather than a chance to educate and prepare herself for a career. I want her to have to buy into the process by taking out at least 25% of the cost of each year in student loans. If she makes it through the 4 years and all is well I can pay them off (of course she need not know this). In my little evil world I was also thinking the approaching 1st loan payment post-graduation might hasten the job search a bit after college was over.</p>
<p>Question: are loans of this nature available without me co-signing the loan (defeats the purpose)? If so, how much could my D conceivably borrow per year even though she will not qualify for any financial aid via the traditional route?</p>
<p>Your strategy is one our financial planner actually recommends, whether or not you are concerned about your student taking college seriously. His thinking is that kids should have some “skin in the game” and at the same time, start building up a credit history.</p>
<p>We didn’t do that for this year, (our daughter’s first year) but may consider it for next year. You will have to co-sign, but you can simply tell her that you’re only doing this to help her get the loan and that you expect her to repay it. If she has a sense of entitlement, this won’t change overnight, but it will help her get started in the right direction.</p>
<p>Whether it’s 25% of tuition depends on the costs of the school. Students not receiving financial aid can borrow $5500 in unsubsidized Stafford loans, sophomores $6500, and juniors & seniors $7500. The total maximum is $31,000 per student. These don’t need a cosigner. </p>
<p>If they are unsubsidized, interest will begin accruing immediately, but can be rolled into the principal of the loan until 6 months after the student stops going to school.</p>
<p>If she needs more loans than this, she will need a co-signer.</p>
<p>As Chevda says there is a maximum available per year, but we, too, had the kids take out loans. The deal was if they graduated with a B or better we’d pay them back. Not graduating or accumulating less than a B average they would pay back. Both kids had colleges that required a B to stay in the major so I wasn’t too worried about the GPA. So far, we’re two for two on “us” paying back the loans.</p>
<p>As noted…your daughter will have a limited amount she can take in loans in her own name. $5500 is the max Direct Loan for freshman year. Anything beyond that, you would need to cosign.</p>
<p>May I offer another suggestion? We had our kids take the Direct Loans each year (as a surprise graduation gift, we are paying them back…but they didn’t know that until graduation). In addition, we asked our kids to work 10 hours a week or so to pay for their discretionary spending (eating out, vacations, concerts, parties, any outings, etc). Our kids worked in the summers and we asked that they pay for their own books with these earnings. In addition, our deal was that we would pay for FOUR years of undergrad education…room, board, tuition, fees, travel home, cell phone (we wanted to hear from them). They understood that if it took longer, they would have to pay the price for additional time (unless it was for a good reason like health issues). And lastly, of they had to retake a course, they had to pay for it. We paid ONCE…but we’re not much inclined to pay for them to repeat failed courses. Our kids had to maintain the 3.0 GPA required to keep merit awards at their schools.</p>
<p>To me, the above was enough investment on their part. 25% for my kids would have been well in excess of $12,000 a year…and we felt that was too much in loans. The Direct Loan max was a little more than half of that. Plus, like I said, we gave them repayment as a graduation present. </p>
<p>We found that our kids were very careful spending money THEY earned. They learned to budget and only spend what they had. Having jobs while in school gave them some work experience, plus their own earned income. It also helped them manage their time well.</p>
<p>I think there are other ways to have skin in the game without taking out loans. I think what I would do is have a heart to heart with her. Spell out your expectations - grades, working, etc. Give her one semester “free” to prove to you what she can do. If she isn’t working, or isn’t getting the grades you expect, when the next semester bill comes, you can refuse to pay the whole bill and have her take out a loan to pay for part of it. If she does what you expect, then pay the next semester. I am not sure if you need to request a loan at the beginning of the year or if you can do it mid term but that gives her the opportunity to prove herself to you.</p>
<p>Besides, just because she is taking out a loan doesn’t mean she won’t party, party, party. I don’t think many kids will fully grasp the impact of loans until much further in the process - like several years down the road when they are paying back the loans instead of buying a new home or that new car. </p>
<p>I am not sure how to intrinsically motivate kids to want to study and do well in school. I am fortunate with my kids - it came from within them to do well without much prodding from me. I do know that my husband, the banker, sat down with both of my kids when they were making their final college selections and went through the loan amortization table to show them what loans really looked like at the other end of the line, and both selected schools that we could afford with no loans. </p>
<p>Maybe a better option would be to say you will provide her spending money based on how well she is doing in school. That way she can have immediate feedback. Also, I think it is normal for kids to want to party when they get to school. As long as they are getting their work done and staying within the law, that is a part of school. Has she been getting her work done in high school despite the partying? As one of my managers said when my kids were considering her alma mater, which was ranked one of the #1 party schools in the country, all that partying made her better in sales since she learned so well how to get along with other people!! Not sure how true that is but just another viewpoint!</p>
<p>One difficulty with taking out loans that require a co-signer, is that if she can’t be bothered to pay them off in the future, you will be stuck with them.</p>
<p>My real concern however, is with your comment that up until now her life has just been “party, party, party”. How can you expect her to start studying once she hits college if she has never done so in the past? Perhaps it would make sense for her to take a Gap Year (or two) and make some money while she defines her academic goals a bit better.</p>
<p>Perhaps a better way to give her “skin in the game” would be to tell her your contribution will be at a level that will fall short of her most likely schools’ net price by the amount of direct loans for 8 semesters. She can then make up the rest with her choice of direct loans or work. Or she can earn merit scholarships (which often have a college GPA requirement to keep them the following years) or choose a cheaper school since the money is now “real”. If she goes under-budget, offer the rest for additional schooling (e.g. professional school).</p>
<p>Alternatively, you can pay the full net price, but tell her that if her academic performance falls below a 3.0 (or whatever) GPA, your contribution will be reduced by the direct loan amount (or maybe have several steps or a sliding scale of sub-par GPA to vary the reduction in your contribution). I.e. part of your contribution is a “merit scholarship” contingent on continued good academic performance.</p>
<p>Or perhaps you can somehow combine both of the above ideas.</p>
<p>If your D is not a focused student, forcing her to take out college loans, the implications of which she can’t really understand as a high school senior, is not going to magically turn her into one. </p>
<p>Wouldn’t it be a better idea to wait until your D has developed some academic or career discipline, and then help her pay for school? If you really think that all she’s going to do is party, then she’ll probably waste your money, not to mention hers. Making a kid like this take on debt is setting her up to fail. Why would you want to do that?</p>
<p>I wish I could introduce you to some of the kids in my neighborhood, whose parents suffered from the magical idea that a non-focused, partying HS kid would miraculously turn into a focused and hard working college student because he or she now had “loans”.</p>
<p>Guess what. Some of those kids are now in year 7 or 8 of a four year college program. Some of those kids are living at home and working minimum wage jobs, with one or two years of completed college under their belt. Some of those kids couldn’t hack the academics after one semester (at least those kids have a relatively light loan burden to pay off). One is married with a baby; not exactly sure what the career plan is, but without the grandparents to help out with child care, cash, and utilities, doubtful she’d have a roof over her head.</p>
<p>If the problem is an immature HS kid, you can’t solve it but showing her a loan repayment schedule. That requires planning, the ability to defer gratification, an innate sense of how to achieve tomorrow’s goals by suffering some inconvenience today. If your D could do those things, you wouldn’t be worried about her maturity level, would you?</p>
<p>Better to sit her down, offer to help her review a number of options for her post HS life, which includes the military, four year college, community college while living at home, working, etc. And ask her what her plan is for paying for whatever plan she’s counting on. If she tells you that she’s not ready to commit to four years of hitting the books, that’s your answer (right now.) You need plan B. Sticking her with loans- which will become crushing if she can’t get out in four years with a launch plan in place- sounds like a bad plan for mom and dad. Not discharged in bankruptcy, not discharged if god forbid, something happens to her, endlessly racking up interest payments while she takes off a semester.</p>
<p>Are you really helping her with this scheme?</p>
<p>Fortunately D1 was a partier but focused. But even with her, taking the student loans didn’t register, during the first few years of college. Not when we went over the promissory agreement, not when we told her what her monthly payments would be. I think it clicked much later, when she was thinking of post-grad plans. So the loans themselves may not be what impresses your D. They’re out of sight, out of mind.</p>
<p>We did pretty much what Thumper notes: had them work summers and some in-between, told them that the school expected them to contribute. (Part of our FA package includes the student contribution.) They took the jobs seriously, paid half the cost of their starter laptops, paid for their books and etc. They may not have understood the loans, but they did get the need to work and commit those funds. And that that money was allocated to their educations.</p>