Have 2 kids, approved for private loan. should I look at parent plus
You should compare the costs and the benefits.
Are you sure you want to accumulate more debt? Is there any cheaper options?
How much in loans are you taking?
Will you be consigning a private loan with your kiddo…or taking it all by yourself?
I consider the interest rate on Parent PLUS loans to be excessive, almost like loan sharks, not to mention the high origination fees. Of course, most people can get one, even with poor credit, which is why the interest rates are so high.
Each family situation is different, but if you have good credit and a sufficient, stable income that allows you to help your student make payments, a private loan in your student’s name with you as a co-signer might make sense, especially with variable rate private loans. The private lender we use doesn’t charge origination fees and allows prepayment even while the payments are deferred. You could save a considerable amount over Parent PLUS loans, especially with a variable rate loan.
My assumption is that I will be paying most, if not all of the private loans I cosigned for my D, and am already making monthly payments in excess of monthly interest even during the repayment deferral period. It’s also a good idea to have term life insurance for your student at least equal to the total amount of the private loans you anticipate getting. Thankfully, term insurance for college students is usually inexpensive unless there are unusual medical conditions.
I wouldn’t take future federal loan forgiveness for Federal loans for granted. If you have good credit, I don’t know why anyone would choose a Parent PLUS loan over a private loan. I do know some college financial aid offices seem to discourage private loans because their paperwork is easier for Parent PLUS loans.
You need to do what’s best for you and your student. There are some horror stories out there about bad experiences with private lenders, but our experience so far has been very positive with the bank that we use. The stories I read about bad experiences with Federal loan servicers seems worse.
Plus loans are at ~7%. My first home loan was at 7.25% and I think there was a point.
Loan sharks historically charged 36% (3% per month).
You may have gotten a good private rate, but most private lenders charge similar interest rates to the PLUS loans. Some families would rather have the Plus loan because it is only in the parent’s name, has consolidation programs, has benefits on death of the student or parent borrower.
You just have to compare and do what is best for your financial situation. I don’t think there is federal loan forgiveness for Plus loans.
The two private loans we currently have are at 3.74% and 5.24%, and we didn’t have to pay any origination fees, which will provide significant savings over the life of the loans. Our lender also offers consolidation loans upon graduation as do other private lenders. If you want death benefits, buying a term insurance policy separately from a private loan is probably cheaper than paying the origination fees and higher interest rates associated with PLUS loans.
Our private lender also offers parent loans, but the repayments start immediately upon funding. To us, it’s good for the student to have some skin in the game and the deferred payment option of a cosigned loan in the students name works well for us.
You’re absolutely right that you have to compare and do what’s best for your financial situation. I understand why some people choose PLUS loans and to each his own, but I think there’s a lot of scare mongering and misinformation out there that discourages people from even considering private loans. They’re not for everyone, but they are a good deal for our situation because we all worked hard to maintain a high credit score.
It sounds all personal family choice. We chose not to take out any loans in parent name. Our kids didmtake the Direct Loans in their names. That was it.
If their colleges had required more loans than those Direct Loans, we would,have deemed them unaffordable.
It was our choice NOT to encumber our kids wit more loans than the Direct Loans…which we paid at graduation…as a surprise gift.
Our feeling was that our 18 year olds really didn’t understand the impact of excessive loans in terms of their futures. And we didn’t want to jeopardize our financial futures either.
But that was our choice…and YMMV depending on the family.
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It’s also a good idea to have term life insurance for your student at least equal to the total amount of the private loans you anticipate getting. Thankfully, term insurance for college students is usually inexpensive unless there are unusual medical conditions.
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The parent ALSO needs to take out a policy equal to the loan with the child as beneficiary to pay off the loan (so this would be in addition to insurance that would go to surviving spouse/dependent children). If the parent dies, as cosigner, the bank often demands that the loan be paid off in full immediately…since the guarantor is no longer alive.
“My assumption is that I will be paying most, if not all of the private loans I cosigned for my D,”
I made the same assumption, and flatly refused to consider loans on the basis that I was going to end up having to pay the loan. My daughters had a budget, and needed to stick with it.
Avoid loans for undergrad if there is any reasonable way to do so.
How much per year in loans re you talking about? $25,000 a year? Or $2500 a year?