Friend is taking out loans! Is it a mistake?

Paying for College
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<p>I was extremely fortunate to receive enough grants and scholarships to have my first year paid for at a local university. My friend did not. He received no financial aid of any kind.</p>

<p>His solution for the first year is to get a $15,000 private loan, variable interest, for 15yrs. I think this is a TERRIBLE mistake on his part and that he will not be able to repay it like he thinks. He says that his education will outweigh his debt (anyone with sense knows that is bullhockey...when the bank comes knocking, they won't care what education you have). I am not sure if payments are deferred or when interests starts for his loan.</p>

<p>He is going into a competitive major that has little job growth, and MAY make around $40,000 a year. </p>

<p>Is he making a mistake? I think he is, and maybe should start out by staying at home and going to a community college. I feel like there is no way I can tell him without seeming like I am trying to be overbearing and/or fiddling with his life. </p>

<p>My thoughts is if he takes out 15k this year, and 10k the other three years, he is looking at $45,000. Lord help him if it compounds and he defers payments while in school.</p>

<p>Is there any facts or anything that I can present him with to show him what I am thinking? Or am I simply over-reacting and this is not much at all and he will be perfectly fine? I mean, some people take 30k+ a year in loans...</p>

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<p>I think the only thing you might be able to do is lead your friend to some information and if he wishes, he can read and reflect further on his own. Unfortunately, for many young adults (and adults in general), they act first and regret later.</p>

<p>Try sending him to a loan-calculator site that he can easily input his interest rate and whether it acrues immediately or not. Suggest he calculate out that 45K in private loans…the numbers may be sobering.</p>

<p>You can also send him here on CC for feedback or just to read some threads here. But if how things have been going lately with actual posters who <em>are</em> asking for advice is any indication, there is a lot of denial about how damaging it can be to go so far in debt as a young person in the name of “education at university X at any cost”.</p>

<p>Be prepared to be ignored or have your friend be angry at you–that is just the nature of what happens when offering unsoliticed (and solicited!) advice. In truth, they are angry at <em>reality</em>, and the messenger usually takes the brunt of the anger.</p>

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<p>*
He is going into a competitive major that has little job growth, and MAY make around $40,000 a year. *</p>

<p>Yikes!!! And he’s borrowing $15k per year (likely more as costs rise) for at least $60k by the time he graduates? </p>

<p>Does he have any idea of what his loan payments will be? Does he plan on living at home after he graduates to pay back his loans? What if he can’t get a job near his home?</p>

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<p>Yep, I imagine he will take out right around 60k. I highly doubt he has even thought about what his payments will be, and I doubt that he plans to live at home.</p>

<p>I do not see any way that I can bring up the subject with him without seeming like a prude.</p>

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<p>15k a year for private loans is way too much. Why not a community college? Saves money and gets lower classes out of the way. It’s not too late to enroll.</p>

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<p>Who is cosigning his loans?</p>

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<p>This is a delicate subject to broach even in families and to even close friends. I have a very dear friend whose daughter is now $80K in debt from a combination of government and private loans with a philosophy degree who works in a coffee shop. She is contemplating going back to school, since she figures she’ll never be able to pay all of this off anyways. It’s not a good place to be. </p>

<p>I had spoken to her and her mother about going to the state flagship university, maybe commuting there which would have left her at about $20K in loans all subsidized, but she just HAD to go to the more expensive school, had to live at school. Yes, she did get substantial grant money as well, but that still left about $20K a year that they had to pay, and she borrowed it since the family has been suffering economic hardships which have only gotten worse. But in the end, it was their business, and I could not push too hard without insulting them, which I came close to doing. </p>

<p>If you can. you might want to show your friend the difference of what he will owe if he pays this college via loans vs going to a state school or comm college and commutes. Show him the monthly payments he will have to pay when he is out of school.</p>

<p>Even the Staffords can really add up while still in college, if unsubsidized. At nearly 7% interest, you are talking $700 in interest being racked up each year the student is in college for a $10K increment. On top of $40K in loans, in such a scenario, the interest alone will have come up to about $3500 of additional money owed. You’re talking about $400 amonth for 15 years. I also don’t see how your friend expects to pay less in subsequent years. In my experience, the cost of college only goes up each year, and the aid is decreased since most school expect the student to undertake an increasing amount of responsibility for their college expenses. </p>

<p>I see this happen again and again. If a family can afford, well and good to go to a local private school that costs a lot more than the public options. But unless you are going for a field that will generate a lot of income right after college or MAYBE if the college is that much better known and better quality (say, Harvard in your backyard), the cost differential is not worth it. </p>

<p>We are discussing this very issue with our son. He likes a local expensive college. Doubt he’ll get any merit money from them and we will get little or no financial aid. Should he do this, the cost will be more than $30K as opposed to $5K for the state schools. Heck, if he commutes and goes to a CuNY or SUNY, he could pay his own way through college without taking out ANY loans, and he is ever welcome to room and board on the house here. If you think about it in those terms, you can see the financial hit you are taking in going to a private school. It’s not like the relatively low tuition the parochial school charges when you are talking private colleges, including Catholic ones. Any and everyone should think long and hard before making the plunge into this type of expenditure, even more so if it in the form of debt that you are taking it.</p>

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<p>I’m also concerned that if he’s borrowing $60k in private loans, that means he’s also borrowing the max federal student loans (about $30k total for 4 years). </p>

<p>That would mean he’s borrowing about $90k per year. His payments will be more than $1000 per month. That’s like 3 extra car payments in addition to whatever real car payment he’ll have. </p>

<p>Young people don’t realize that when they get their first real job, taxes take a big chunk of the money. Then there’s rent, utilities, cell phone, clothes, food, entertainment, etc….not much left to pay back student loans.</p>

<p>Even if he’s not also taking out federal loans (if not, why isn’t he doing so to reduce private loans???), he’d still have payments of about $700+ per money (maybe more, depending on accrued interest while in school). </p>

<p>Your friend needs to ask some young adults who are earning what he’ll likely be earning when he graduates if they can easily make 2 extra car payments a month.</p>

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<p>Isn’t there going to be an income cap on what you have to pay on a monthly basis for federal loans(not private) in the future? If so, if you have to borrow money it would seem best to fund your degree with as much federal money as possible?</p>

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<p>Even without any cap, the interest rate on a federal loan is much more favorable than anything you can get without a really good cosigner. The only problem is that federal aid isn’t really designed to fully cover anything more expensive than commuting to an in-state public school. For people who want to be residential, there might be a little stretching, and if you want to go to OOS or an expensive private you kind of need some money outside of that (scholarship or your own money). If you can avoid private loans at all, you should do so.</p>

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<p>Thanks for all of your replies. As far as I am aware, he is not taking out any federal loans, which also does not make sense to me. We are both going to a state university that is one of the cheapest, but at a community college he could stay at home and pay maybe $3000 a semester vs the $8000 at the uni.</p>

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<p>As far as I am aware, he is not taking out any federal loans, which also does not make sense to me.</p>

<p>At a minimum, ask him about that. I have a feeling that he is taking out federal loans because those probably would have been in his FA package. If he thinks it’s “easier” just to go with all private loans, he’s making an expensive mistake. At a minimum, he should take out as much as he can in federal loans.</p>

<p>What is his situation? Is his EFC too high and his parents won’t pay? And, if his parents’ credit is bad, he can borrow more federal loans.</p>

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<p>How on earth is he getting private loans? The subsidized Stafford is the best deal for him and he can get it himself as long as there is some need. Otherwise he can take the non sub Stafford. I don’t think you know what is going on enough to really say much to him. Many times a college will put the federal loans in the package as Mom2collegekids says. I would think that is the case.</p>

<p>Again, all you can do is give him some info. To push too much is getting invasive about a private matter.</p>

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<p>^^^</p>

<p>Unless the friend is just assuming that some bank is going to loan him that much money, I’m thinking that the parents have already decided to co-sign for him.</p>

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<p>Considering how many people seem to make that assumption on this forum, I wouldn’t be surprised if someone actually did think that.</p>

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<p>And I thought taking out 100k over 4 years is bad (what my friend is doing). If he studies hard enough, he can go to grad school for free.</p>

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<p>juniors and seniors can get more aid. also work study or just plain work.</p>

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<p>His parents have already cosigned for the loan and submitted the application.</p>

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<p>@wanderer53</p>

<p>Juniors and Seniors can take out slightly higher amounts of Sub and Unsub Federal Stafford Loans. But the figure is not that drastically higher, especially when considering the cost of college trends upwards 4 - 8% each year as well, sometime more. The additional loan amounts available only goes up 2K between frosh and junior year!</p>

<p>This extra 2K means nothing when a student is short upwards of 15K+ the freshman year! There is just no relief in sight.</p>

<p>Year Sub + Unsub
Fresh: 3500 + 2000
Soph: 4500 + 2000
Junior: 5500 + 2000
Senior: 5500 + 2000</p>

<p>More loans are available for INDEPENDENT students - those older than 24, married, have dependent child, etc. Note, a student does not become independent because the parents no longer claim them on tax forms… student must turn 24 or meet one of those other qualifying markers. Even then, while the amounts are slightly larger for independent status students, it still doesn’t cover a 25K a year gap.</p>

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<p>* juniors and seniors can get more aid. also work study or just plain work. *</p>

<p>all students can get workstudy if they have need. All students can work a part time job. you don’t have to be a junior or senior. Juniors and seniors don’t typically get more aid. They can take out slightly bigger loans, but that may just barely cover any college cost increases that have occurred.</p>