loans: refi instead?

Paying for College
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<p>*and it’s the STUDENTS income and assets that are used (first and formost AND at a much higher rate) to calculate the STUDENT’ EFC. Again, it is the STUDENTS EFC, not the parents. *</p>

<p>This is misleading.</p>

<p>Most students don’t earn enough for their income to even get considered in FAFSA. I think about the first $4,000 of a student’s income doesn’t count. And, NONE of workstudy counts at all. </p>

<p>Since most young teens are only earning a few thousand every year, very little to none of their income gets counted. </p>

<p>the biggest thing that drives EFC is typically parent income. </p>

<p>However, a student’s savings does have an impact on EFC, yet most students don’t really have enough to have much of an impact (if any).</p>

<p>Since EFC stands for Expected FAMILY Contribution, it isn’t the expected student contribution. One might say that it’s the " Expected Family contribution for a particular student."</p>

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<p>

This is a very misleading thing to tell people. For a dependent student the parent income and assets are the primary thing used to calculate the EFC for the majority of dependent students. While unprotected parts of a students income and a student’s assets do have a big impact, very few dependent students have high income and high assets so they won’t, in the vast majority of cases, have as high an impact as the parents income and assets.</p>

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<p>“Are you the student or the parent?
Are there other kids to put thru college?
Are the parents paying any part of college with current income/savings or is the entire parent portion coming from the refi.”</p>

<p>I’m a parent. Yes one other kid, 6 years behind, to put thru also. Yes, income and savings will be part of the picture.</p>

<p>I just thought that seeings as mortgage rates are very low now, it seems lower than most student loans, that it <em>might</em> be a way to go to supplement the funds available – perhaps for BOTH kids. Mortgage interest is tax deductible too. But of course there are refi costs, so… Our current mortgage <em>is</em> a 15year.</p>

<p>"I think this is not the way to pay for college. First of all, it’s too much to borrow…Secondly, you’ll be paying for this for 15-30 years. Crazy.
BTW…does the screenname suggest a major that will require med school or grad school? If so, then don’t go into debt for undergrad. That is too short-sighted. "</p>

<p>Well we would essentially just be adding on to our current mortgage, in an account that is just what we need, which is less than our equity into it, less than our original down payment probably…</p>

<p>Yes med school <em>might</em> be in the picture – One definitely lowers one’s chances of getting into med school coming from a lower-ranked college. So part of the issue is attending a school that has a well-troddened path to med school, but then this may mean having to take out loans to do it… even for college.</p>

<p>I will look more closely at HELOC, though I don’t know if it has all the same advantages.</p>

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<p>*One definitely lowers one’s chances of getting into med school coming from a lower-ranked college. So part of the issue is attending a school that has a well-troddened path to med school, but then this may mean having to take out loans to do it… even for college.</p>

<p>*</p>

<p>That isn’t true. </p>

<p>If you think that you’re increasing your child’s chances for med school by spending more for undergrad, then you are sorely mistaken. Acceptance to med school is about GPA and MCAT score. While I wouldn’t recommend going to some unknown name school, there is no reason to think that an expensive school is needed to prepare your child for med school. </p>

<p>my child is pre-med at a state flagship. It’s acceptance rate for med school is high…much, much higher than the national average. </p>

<p>What colleges is your child considering?</p>

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<p>Someone on this forum (I forget who) mentioned a while back that she had been using a HELOC for paying tuition, but when the housing bubble collapsed the bank reduced or revoked their line of credit.
Just something to keep in mind if using a HELOC is part of your planning. It would be wise to have a backup plan in case the housing loan market dries up again.</p>

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<p>You might want to visit the pre-med forums here on CC.</p>

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<p>The only time another kiddo really makes an impact on ONE kid’s family contribution is when BOTH are in college at the same time. Having a kiddo who is 6 years behind won’t matter at all.</p>

<p>If your kiddo is even THINKING about medical school, you want to keep your undergrad costs to a MINIMUM. And remember that many medical schools continue to ask for parent info on the FAFSA form even though the student would otherwise be independent for financial aid purposes.</p>

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<h1>"One definitely lowers one’s chances of getting into med school coming from a lower-ranked college. So part of the issue is attending a school that has a well-troddened path to med school, but then this may mean having to take out loans to do it… even for college.</h1>

<p>That isn’t true. If you think that you’re increasing your child’s chances for med school by spending more for undergrad, then you are sorely mistaken. Acceptance to med school is about GPA and MCAT score."</p>

<p>I didn’t say that med school depends on spending more for college. However the school that the student attends DEFINITELY factors into the med school admission. I do med school admissions. Yes GPA is important as is MCATs, but <em>where</em> the GPA is from, what courses are taken (which means GOOD course offerings), letters of recommendations (better from well-known professors), and research experience, all give the med school applicant a leg up on the competition.</p>

<p>These factors (good hi-level courses, nat’l known faculty, school rep, hi-level research opportunities) all point to attending a high-ranked college/undergrad univ.</p>

<p>Note that I did not mean to imply that this rules out state schools. On the contrary there are very good state schools that fall into the category that I mentioned AND have lower COA. Its all going to depend on where the kid gets in, what they offer, their COA and the considerations mentioned above, then we’ll know how much we’ll have to cough up… The point is, we may have to throw it more to a school that gives him a better shot a med school…</p>

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<p>*The point is, we may have to throw it more to a school that gives him a better shot a med school…
*</p>

<p>I don’t know what state you’re in or what kind of schools you’re talking about. If you’re talking top 15 (ivies/stanford/etc) then there is an edge. After that, not so much… until you get to the low-level schools that no one has heard of and/or has crappy science programs. </p>

<p>But, it’s your money and your debt. </p>

<p>If your kiddo is even THINKING about medical school, you want to keep your undergrad costs to a MINIMUM.</p>

<p>Thumper, I fully agree.</p>

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<h1>"The point is, we may have to throw it more to a school that gives him a better shot a med school…</h1>

<p>I don’t know what state you’re in or what kind of schools you’re talking about. If you’re talking top 15 (ivies/stanford/etc) then there is an edge. After that, not so much… until you get to the low-level schools that no one has heard of and/or has crappy science programs. "</p>

<p>For example, I’d say UC Berkeley or UCLA or UNC Chapel Hill definitely a premed edge over UC Santa Cruz or UNC Charlotte. There’s a huge diff in COA between Chapel Hill and Charlotte… Neither Charlotte nor Santa Cruz are schools that “no one has heard of”, but definitely a cut or three below for pre-med purposes (all other things being equal)…</p>

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<p>If you want to take out some of the equity in your home, I think a refi or home equity <em>loan</em> may be a better idea than a <em>line</em> at this time in history, because interest rates are so low. If you can lock into a low rate, that may wind up being better than getting stuck owing a lot on a HELOC whose rate will probably rise. Of course the downside to that is that even though you can pay down principal on a refi or loan, you can’t reduce your payments until it’s all paid off, unless you refi again…</p>

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<p>“If you want to take out some of the equity in your home, I think a refi or home equity <em>loan</em> may be a better idea than a <em>line</em> at this time in history, because interest rates are so low.”</p>

<p>Yeah, I think you’re prolly right… the mortgage rates are so low, plus the tax deduction… one would hope that ROIs from stocks, etc have <em>got</em> to be better in the near future than those rates, therefore its a “better use of the money”… (I dumped a small $$ on AAPL a couple of years ago – obviously I’m kicking myself now for not investing a whole lot more in AAPL…)</p>

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<p>In general, there are advantages to a refi or HELOC if the choice is those or college loans - for example, the interests rates are usually lower, and the debt can be discharged in bankruptcy. There are also risks, as mentioned earlier, that a HELOC can be restricted if the home value drops, or the interest rates can rise. </p>

<p>Also, check out IRS form 6251, used to figure Alternative Minimum Tax. If you have to pay this tax, or are close, a refi or HELOC that is used for college would not be tax deductible…</p>

<p>"Do not include any interest paid on (or any mortgage insurance premiums paid in connection with) the part of the balance of the new mortgage that exceeded the balance of the original eligible mortgage immediately before it was refinanced (or, if smaller, the balance of any prior refinanced mortgage immediately before that mortgage was refinanced) "</p>

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<p>Well…here is my quandary…We have been paying our child’s tuition in full each semester (minus FAFSA aid…not much). However, we are considering using a HELOC to make much smaller payments over time and using the extra money (that had been going towards paying in full) to invest more in a 401K and our other children’s 529 plans.</p>

<p>In other words, we’d be paying a few hundred a month paying back the HELOC but we’d be investing the thousands we’d have left in hand in the other plans. Thoughts???</p>

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<p>You need to look at more than just the interest rate. </p>

<p>You also need to look at costs associated with the refi or heloc (appraisal fees? points?) – and you also need to look at how the heloc is amortized an how much you actually intend to pay. When I had a heloc on my home it was for 15 years, but not amortized in such a way that it would be paid off in that time with minimum payments – on the contrary, my payments were only slightly above the cost of interest, and if I had kept the heloc for 15 years, borrowed the full amount and only made minimum payments, there would have been a huge balloon payment at the end. Also, there was a pre-payment penalty if I paid off the loan early. </p>

<p>My point is, there is the interest “rate” and then there is what you actually “pay”. A Parent PLUS loan also has a loan generation fee – so it, too, is more than the posted rate – but generally it is amortized over 10 years. As the loan is paid down, the amount of interest goes down as well. </p>

<p>I did take PLUS loans – but there is a very good chance that I will be able to pay them all off, in full, this year – just about one year after my daughter graduated. So of course I won’t pay interest over 10 years, I’ll pay whatever it cost to get me to this point. Part of the reason I can do this is that my d. got a job right away after graduation, so I immediately started paying more to the loans – right now the full amount to pay off the remaining balance is not much more than I was paying out each semester while my d. was in college. (I never borrowed the full amount for the PLUS loan – I was usually paying about half directly, and borrowing the other half)</p>

<p>Anyway, the point is simply that you have to look at more than the interest rate. If you do take a Heloc or refinance your home, pull out a calculator and figure out what you need to pay each month to pay off the balance over 10 years. If you borrow $50K and pay it off over 10 years at 7.9% interest, you’ll pay roughly $22,500 in interest. If you borrow that same amount and pay it off over 15 years at 4%, you’ll pay $16,500 in interest. </p>

<p>If you refinance your home with a new 30-year mortgage, pulling $50K out in the process – then that extra $50K could end up costing you $36K in interest (at 4%). Of course, you might see your current house payment go down with the refinance - and that may be what you have to do to make college affordable – but again, my point is, you need to look beyond that interest rate. It’s not the rate that counts, its what you pay over the life of the loan.</p>

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<p>Excellent post calmom. There’s also another factor that can come into play with a HELOC–if one is a disciplined saver/payer, one could use the HELOC for its low interest rate and flexible payment structure and figure out what the monthly payment would be in any amortization schedule that fits one’s finances, so, for example, the loan could be paid back in 10, 15 or 5 years. It’s easy to just pay back the minimum amount, but if one stuck to it, one could have the benefits of the low(er) rate and be able to pay it off in a reasonable amount of time without paying a huge amount of interest over the life of the HELOC.</p>