(Is this thread in the right category? or should it go to the financial aid section?)
Right now, my choices are to go to either an LAC or to community college.
I’ve narrowed my 4-year college choices to Lebanon Valley College and Elizabethtown College (I think I’m leaning more towards Etown but I want more information to be sure). Both will generally have around the same cost for the year (around 26k, with scholarships).
My parents dont want to take out student loans and instead are planning on using house equity to pay. They’ve spoken to friends who have done something similar and it seemed to work out for them (the friends). They’ve told me that they’re fine with whatever college I choose to attend, in spite of the price, and they don’t want me to stress out too much abt the financial aspects.
I appreciate that, but that still doesn’t stop me from worrying abt how everything will work out. I’m still a bit confused abt the concept of paying out of equity (my parents were a bit reluctant to talk abt financial stuff with me, and it was only recently that they told me that they were planning on using house equity).
If I were to choose to go the the 4-year school, we would have to take out at least around 104k over the span of 4 years. That’s quite a lot, isnt it? I understand that there’ll be interest charged, although it may be lower than interest charged from a loan. I apologize, I’m still fuzzy on the details of our possible paying method. I’m just wondering if this is the best method for us. Can anyone give a better insight on it?
on the other hand, attending cc is obviously a cheaper option, and it’s not like I would mind it too much. But I think I would prefer to go to a 4-year school tho, bc of the better resources there, and also bc I want to learn to live a bit more independently. I’ve heard that transferring from a cc can be a bit of a hassle too. I’m also concerned abt how well I would adjust after I transfer, especially since I’m a pretty shy person who takes a while to get to know new people; I know that I would have less time to build up relationships w/ others.
Im just kinda torn bc the practical side of me knows that cc is the better option, financially wise, but the other side of me doesn’t want to miss out opportunities that a 4-year college can offer.
I would appreciate it if anyone can offer any advice on how i should i proceed. I know this is cutting it very close to the deadline. I just hope that I don’t make a decision that I’m going to regret.
They’re going to take out $100k+ in a home equity loan or line of credit. This is a loan. They have to pay it back. If they do not, the bank takes their house.
$100k is a lot, yes. You’re wise to be concerned. Your parents are, in reality, approaching the years where they should be saving for retirement, and instead of having their home equity as a potential part of that, they’re going to use it on your college. While that is their decision, is it the best decision?
If they have any type of retirement savings plan, like a 401K, they should have access to a financial planner via that plan. I’d ask them to meet with that person, even if over the phone, to talk about their retirement and their plans to use this home equity for your college expenses - when the alternative is to NOT do that at all, and to have you go to community college for two years, then transfer. Just so they can get some independent financial advice on whether or not this is a wise choice for them, considering their age, income, retirement plans, etc.
If you do decide to go to one of these four year schools, consider doing things to lessen the cost. That may be applying to become a Resident Assistant in the dorms (often comes with free or reduced price room), getting a part-time job, working over the summers, etc.
100k is an awful lot of money for soemone to borrow for an undergraduate degree. Even if you took the standard federal student loans (27k total), and they borrowed the rest, they still would have a lot of debt.
Take another good long look at the community colleges you can commute to. You could save a lot of money in the first two years, and then you could transfer to a decent state university. Do the calculations for that. See if it works out to less money total for the four years. I expect that it does.
Don’t worry about this, youre a teenager.
Tell your parents that you worry out them and want to make sure it won’t put them in any jeopardy. Tell them to consider talking to an educational planner. Many states have a service like this available I believe.
The home equity loan is line of credit. Basically like a credit card with the house as the bank. They don’t have to take it all out in year one just the 27k. It is almost always available with an interest only feature. Meaning if they borrowed the full 100k and the interest rate is 6 percent. They can pay back the 6000 per year or 500 per month. Rates are lower than that right now but that’s a good yardstick. Depending on their mortgage, if they have one - isn’t over 750k this interest is potentially deductible. Lowering their true economic cost. The first three years the payment will be lower than the example because they will be taking money in increments . However if they pay “interest only” the loan will stay at 100k. They will need to also make principal payrnents at some point. They may have a plan.
Don’t worry about the bank taking your house.
If they run into economic hardship they will have to sell the house. Pay back the loan and keep the rest. Perhaps you can help them pay this back once you are working. Perhaps they want to sell the house once your through school anyway.
If they have stable careers and other savings, it can be a cost effective tool. But worth talking to a professional if they can.
Either way, her family loses their home. If the market is bad the parents might not be able to sell.
OP, how much will the cc cost? Can your parents contribute at all?
Over 4 years of college you can borrow $27,000 of federally subsidized loans. It is $5,500 the first year & about $6,500 the second year of college. I think that it is $7,500 per year for your final two years. Do this first before borrowing against your parents’ home because the federal government pays the interest on the loans while you are in college.
I think that you should consider community college for your first two years of school. Low cost & affordable & should result in an associate’s degree. Then you should have a clear understanding of your desired career.
Your parents are saints.
Not sure which community college system you are near. But if you are in central PA, HACC has transfer agreements with LVC and Etown. When we visited LVC back in the fall, a HACC student was in our tour group. LVC offers scholarships to high performing HACC students who transfer in.
http://www.hacc.edu/Students/TransferringfromHACC/Four-Year-Transfer-Partners.cfm
While it is understandable that you are concerned about your parents’ financial well-being, I think I would take them at their word regard their commitment to making it work for you at Lebanon Valley or Elizabethtown. Both those schools are well regarded PA LACs, and you will get a great education. Maybe they are more comfortable with the home equity loan than paying with savings or more liquid assets. They probably feel that this is a worthwhile investment in you and understand what it means for their financial picture. If they are willing to discuss these things in more detail with you, it might make you feel a bit less guilty. One day you may have college-aged children of your own, and you’ll be in a similar position of having to make tough choices to benefit those you love.
Thank you for all the responses!
@austinmshauri The cost for one year at the cc is abt 10k.
@InfiniteWaves I don’t live in central PA; that option doesn’t work for me unfortunately
I told my parents to talk to a financial planner but I don’t know if they are going to. My dad’s talked to some people in his office who work with finances, tho.
if i do decide to go to a 4-year school, and if we do proceed with borrowing out of home equity, what should we expect from that? Is there a limit to how much we can borrow? Where would this money come out of? How would this affect my parents retirement accounts?
I’m pretty sure my parents have some idea of a plan but i don’t know the specifics bc they haven’t told me much…
All in all i just want to know if it is worth it to go to a 4-year
I don’t blame you for being confused. I would be as well. If they are unable to contribute from savings and will have to borrow the whole amount, it sounds like they haven’t been able to save. What has changed that will make it so they will be able to pay off the loans? Or are they expecting you will be paying off over $100k in loans? Because that is a lot.
I do agree with a previous poster. No matter which way you choose, you need to find ways to cut costs and save money. Get a job, now and when you get to whichever college, always be on then look out for potential scholarships.
JMO, but if they insist on you going to a 4 year and then taking loans, compromise and take the student loans first in your name and then they could take out the remainder with equity. That will at least give them a little better chance of not losing their house if anything goes sideways. Tell them if, after graduation, they want to help you pay off your loans after their house is secure, then you won’t argue. Tell them it could help you build up your credit to have loans that you pay off in your name.
I think my parents are planning on borrowing some money for the schopl year, then slowly pay that off, and repeat. Again, they haven’t told me exactly how they’re going to do it…
I do on planning on getting a job for the summer and in the school year.
@mom2twogirls Would that ibe a better method for paying? My parents don’t want to take out student loans bc they’re worried abt the interests rates. Loans are a last resort for my parents
There are other people than me on CC who know better about the loans, but my understanding is that the guaranteed student loans are the best and often only ones recommended by financial people. As a freshman you can take $5500 and it goes up a bit the next couple years. It won’t cover your whole amount, but it could be helpful for your parents not to have that amount in their names and if you pay it off on time, it could be helpful for your credit. It’s not recommended that you take out loans as a student beyond those, others you would need a co-signer for anyway.
Since your parents are borrowing the full net cost, it sounds unaffordable. If they haven’t been able to save anything to contribute, where’s the money to repay the loan going to come from? Having a $100k + interest mortgage (on top of whatever they currently owe) as they’re heading toward retirement age may not be the best financial plan.
You can pay the $10k for cc by taking the ~$5500/year federal student loan + ~$3k summer work earnings if you get a job + $2-3k from your parents. I’d go that route and let them help with the last 2 years. You can borrow $7500/year as a junior and senior, so with summer work earnings you’d have almost $11k. If they had to borrow, it would only be for 2 years of tuition. Are there any 4-year schools you can commute to from home?
The amount of a home equity loan is based on 80 percent of the value of the home less the mortgage
300k home.
150k mortgage
80% of 300k appraised value = 240k minus mortgage of 150k = 90k home equity line
The issue I have with LACs and private universities is that they always charge more money for tuition than they’re worth. There’s no bachelors degree that I’m aware of that’s worth $100,000. I find that completely insane. You get the exact same quality of education at an in-state university for a small fraction of that cost. If you go to community college for 2 years, that small fraction is cut in half. That’s a more sensible option.
@coolguy40 ,
To the layman, your description is powerful. To those who have been through the college admissions process (as students, as parents), we know better (or we should know better!). The OP is considering an option, which, I think most of us agree, is perhaps not wise. Typically, though, few pay the sticker price at an LAC. And most LACs that are not Williams or Amherst give out lots of merit aid, even to families who do not qualify for FA. From families’ perspectives, it is called merit aid; from the colleges’ perspectives It is called discounting
For me, the expensive LAC I attended was just a tad cheaper than the in-state flagship. What you describe is what scares many people away from private schools in general. Most are new to the college admissions process, and I get that. Most do not know how FA works, and I get that. But it is sad–and something that private schools have to fight against–that so few people realize that hardly anyone pays the actual sticker price. LACs could not survive, as there are not enough 1 percenters to go around.
@austinmshauri There are a couple 4 year schools near my home that I’m reconsidering.
I think I’m going to shift away from looking at the two LACs I mentioned in my original post. I think parents will still prefer not to take out student loans if they can help it
My son commutes to a local 4-year and loves it. He spends as much time on campus as he wants and uses his summer and work study earnings to travel.