I would rarely, if ever, recommend more than 30K of student loan debt for undergrad

Parent Cafe
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I just read an article about a girl who incurred $100,000 of student loan debt attending NYU. Thus, as a CPA/tax lawyer and writer of financial books, I thought I would address the issue of incurring large amount of undergraduate student loan debt for a “dream school.”

Student loans are among the worst loans that you can get. First, they charge a hefty interest rate of almost 8%,which is much higher than most mortgage loans today.

Secondly, they generally can NOT be discharged from bankruptcy. They only exception that I am aware of is when a student is totally disabled and can’t work forever.

Thirdly, if you owe student loans, the government can use your tax refund to pay off the loan

Fourthly:many student loans require parental guarantees. You would be surprised how many times students can’t pay off their student loan debts thus forcing the banks to go after the parent’s assets. It is a real disaster. Even worse, if there is a default on some student loan debts, such as Plus Loans, the federal government can garnish your Social Security to pay off these defaulting debts.

.Finally, If all this isn’t bad enough, you can only deduct up to $2,500 a year in student loan interest and only if you make under a certain amount of money. This translates to about $31,000 worth of loans that would allow the deduction for interest.

Bottom line: I do NOT ever recommend incurring more than about $31,000 of student loans for undergraduate education,which is what would produce the maximum deduction for student loan interest. If you need to incur more, and I hope it isn’t much more than $31,000, I would either recommend going to a less expensive school or consider doing what you can to reduce them such as work study, seeking scholarships etc. I know many people who didn’t mind incurring student debts while in college ,but I know NO ONE who liked paying them back!

Trust me on this, it is NOT worth sending a kid to their “dream school” for undergraduate education if they have to incur much more than $31,000 in student loan debt.

NOTE: This discussion only relates to student loan debt incurred for undergraduate education. Graduate and professional school might be a different matter. Some of the issues still apply however.

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What you say makes perfect sense. Will it dissuade many students, and their parents, from incurring mega undergrad debt? Doubtful.

On chancing threads here on CC many of us ask the student what their parents can afford to pay. Their response is often “none of your business”.

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Even the cheapest public colleges tend to have a 15K-20K COA. If a family can’t or won’t provide money upfront, would you say that taking on more than 30K or debt is worth it for a student in this scenario who doesn’t have the stats to get large merit awards?

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Have you seen any experienced posters out here recommending that anyone take more? I can think of only one regular poster who argues about this. Everyone else pretty much says stick to your federal loans ($27,000 total).

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TomSROfBoston, What you say may be true; however, if I can stop even one student from incurring large student loan debt, I could change the life of someone.

Icb567876, all families have choices. The student can start out at a community college where the tuition is MUCH less. They could also qualify for student grants if the family is poor.

Intperent, there is an undercurrent here on College Confidential to send your kids to the best “named” school possible , finances be damned. This is also the philosophy of many high school guidance counselors.

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I know someone who works for a student loan servicing company. The horror stories that she has told me are incredible.

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The student loans will be very different in next few years. May be lower interest, lower limit for undergradute loans, or longer term for repayment

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All those would be welcome and I hope it happens.

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To some of your points:

  1. You can’t compare student loans to mortgages. Mortgages are secured loans, so the bank is taking less of a risk. Student loans are unsecured, so are much closer to a credit card than a mortgage. Credit card interest is often 15-20%, and no one blinks at that. (I think that’s not smart borrowing either)

  2. loans are usually not dischargeable, but more have been lately. Still not a good plan to ever think bankruptcy is the way out of your debts, any debts.

  3. the government can take your tax refund IF you are in default on government loans, not just if you owe money. So don’t have a tax refund if you are in default. Tax planning can avoid this (I can calculate my refund/amount owed to wit in $50). This is true for Stafford or Perkins loans too, the first dollars you borrow, not from private lenders. Don’t get into default.

  4. Parent plus loans belong to the parent, so the parents aren’t co-signing. Social security, or any government payment due to you, can be taken if you are delinquent on a government obligation, so if the student still hasn’t paid by the time SS kicks in, it can be garnished. There are 65+ year olds getting hit for loans they have never paid back.

Absolutely agree that borrowing should be kept low, and often the solution is to pick a cheaper school, not borrow more. I don’t think I’ve ever seen on CC that it is a good idea to borrow more than the Stafford loans, or more than $30k, and most want to even avoid that. Not for a dream school, not for Harvard, not for art school. Set a budget and stick with it, and plan to pay back the loan, not default or assume it will be forgiven.

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It has been said many times on here.

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Not all student loans are created equal.

Personally, I’d strongly encourage someone to take out the max they are eligible for in Stafford loans than borrow even $1000 via private loans.

With the government loans the parents are not responsible for repayment and their assets would not be at risk (PLUS loans of course are a different animal since those are parent loans and not student loans).

Even though very rarely dischargeable, the government loans have a wide variety of income based repayment plans (REPAYE is 300 payments at 10% of income and all borrowers of government loans are eligible), as well as a variety of deferment and forbearance plans for times of hardship. Private loans do not need to offer any such programs.

Not that anyone wants to consider it, but government loans are erased when the borrower is deceased.

Private student loans are rarely if ever a good idea.

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The income based plans are tricky. Annual reapplication is required. If you skip a year for whatever reason, the clock restarts. Many students use also use up their deferments and forbearances up front to avoid having to make a payment and have nothing left in later years if they have financial setbacks.

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Even if it has been said many times before on CC, it’s certainly a message that bears repeating…especially from a CPA/tax lawyer and writer of financial books. So, OP, thanks for posting.

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Very important topic that needs to be repeated again and again, especially in late March, early April.

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Just from the recent talk with my friend, we agree that no UG worth any amount of debt. UG is UG, just go where you afford to attend without a loan and move on to Grad. school without any debt.

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My husband and I had to use loans to make undergrad and grad school possible. Our daughter can go to school debt free now because of the merit she earned combined with choices we made to support her education. It is one way that she gets a head start that we couldn’t have. I still believe loans can be helpful for some families, but they have to be used responsibly.

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Please get this information out to some knucklehead guidance counselors, who “don’t want to pry” about income, but who need to ask kids: “Will your parents be able to pay these costs? Colleges don’t provide full rides anymore”. Instead of “you’ll get good scholarships with your grades”.

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"UG is UG is blatantly false. Some open doors–others close them. Just a fact

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Most students can’t attend college unless they borrow to pay for it. If your daughter didn’t have to borrow for undergrad, she’s very lucky.

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@barrons Which UGs close doors?