Just starting this process and thinking out loud…so if this is a dumb question, believe me, I will be asking more. S was made an offer with a certain amount of academic aid (is that merit money.??.). I’m sure we will not get any need based aid as income is too high. Anyway, for the financing part, can we do a combination of the parent plus loan (in our name) and private loan (in his name, with either us or grandparent co-signing) or does it need to be one or the other. (Yes, I know…loans are not the ideal, and I am not mentioning $$ amounts on purpose…but if it comes to that…I just want to think about, as someone else put it, "creative financing)
First you want to use Stafford loans (in his name) as they will be the lowest interest rate. After that, yes, you can take out PLUS loans in the parent’s name (either parent) and then move to private loans. You can do them in any combo you want, up to the COA minus grants/scholarships.
@twoinanddone , what is the COA? Sorry, new to this and not up on the acronyms
COA = Cost of Attendance (which includes tuition, room, board, books, general supplies, travel)
Sounds like he got a merit award.
First your son should take the Stafford Direct loan from the feds, and then whatever’s left can be covered in the ways that you mentioned.
However, your son should avoid loans as much as possible.
Maybe he needs to apply to MORE schools that will give him LARGER merit awards so everyone won’t be burdened with loans.
@mom2collegekids , yes I’ve stressed that to him. This is all new to me so I will have many questions along the way, step by step. I just was curious if the parent plus loan had to be for the entire remainder,( after academic aide, cash, and scholarships, ) or could it be split between that and private loans so part of the remaining burden is on us (plus loan) and part is on him, and co-signer. (Private loan)
The PLUS loan and the private loan can definitely be split. If for some reason the combination of the loans exceeded the cost of attendance (COA), the school would reach out to you to ask which loan you wanted to reduce.
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I just was curious if the parent plus loan had to be for the entire remainder,( after academic aide, cash, and scholarships, ) or could it be split between that and private loans so part of the remaining burden is on us (plus loan) and part is on him, and co-signer. (Private loan)
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I would think that the private loan should be gotten first (after figuring merit and Stafford Direct loan), for the desired amount, and then that gets applied to the balance, and then the Plus Loan would cover the rest.
What is your son’s career goal? Sometimes kids become so focused on going where they want to go that they’ll agree to any amount of debt - mostly because they really have no clue about how paying back that debt later will negatively affect their lives for a very long time.
Keep in mind that private loans will still be owed by the co-signer if the student were to tragically die. However, if the child or co-signing parent dies, the Plus loan is cancelled.
@mom2collegekids …Wall Street is his goal…lol. Big dreams.
And the inverse is true as well with private loans, at least in some cases. While in the process of learning the ins and outs of FA for daughter who is a rising senior, I also happened to get involved in the estate of my Father-in-law who passed away earlier this year. For two of his grandchildren he was the co-signer on a ridiculous amount of private student loans, including one for a kid who never finished school. Upon his death the loans became automatically due and in default. The way his estate was structured there is no recourse for the lender against the estate and now both kids have massive amounts of loans immediately due. It is not a pretty picture and most of it had to do with their Mom who used creative financing to pay for her kids to attend ‘name’ schools, even though their intended majors would never suffice to pay them off.
Much better to go with the ParentPLUS loan if necessary and possible.
Hmmmm…interesting, didn’t think about that @Skates76 , this is why I am coming to this board!! why would they become due immediately as opposed to the student just keep making monthly payments?
^^The reason is because that’s what the loan terms call for! It is a private loan and the terms are set by the lender. The extension of credit was made based on the grandparent/parent’s credit, and the student is just an extra bit of security. The lender would rather go against the estate of the grandparent (and it is usually possible, @skates just had a situation where the estate was protected by trusts and other vehicles) and claim the entire balance. To do that, the full amount would have to be due as they aren’t going to keep the estate open for 10+ years.
It is no different than a mortgage loan that is normally due upon transfer or death. There are some exceptions for family members taking over, but for the most part they are due when you die.
The loans became due because the “guarantor” (the grandfather) died. The loans were only given because there was a person who would pay off the loans if the new-grads couldn’t.
This isn’t unusual.
those lenders likely expect the “new grads” to somehow refinance those loans with someone else who can guarantee the loans.
I know that in some ways it doesn’t make sense. The new-grads don’t have the means to pay, so it would seem that the banks would WANT the regular payments to still come in.
The banks can’t squeeze blood out of turnips. So, what actually happens in such cases? It sounds like these young people have nothing.
And this is one reason th guarantor should have life insurance in the full amount of the loans.
And if you consign private loans with your son, you will want get life insurance for him too. Because remember…if something happens to him…you will be responsible for those loans. I know…it sounds not pleasant…but it’s a financial way of life.
Do you know how much life insurance costs for an elderly person, if it is even available?
^^^
Right. Life insurance would be too expensive for a man that age, but it seems (to me) that the banks may have been careless not to make sure that his assets weren’t tied up in a trust that could not be accessed if necessary. Of course, he may have placed his assets in a trust after co-signing.
Life insurance for an elderly person? $30,000 per year. (It’s a horrible situation; I won’t go into the gory details.)
Why would the bank care? If there is a default on the loan, it is guaranteed. Can’t be discharged. The bank has at least two people to go against.
The bank will make the loan as long as the student/guarantor can prove they can pay it at the time. It’s not like a real estate loan that has to be approved against a lot of standards. This is just a ‘can they make the payments?’ determination.
The elderly person shouldn’t even sign these loans without that insurance. If someone gets term insurance at age 70 for a 20 year term, it’s not going to cost $30,000 a year for $100,000 of coverage…which would certainly help.
The other thing…this person could have written their will to deal,with this. Guess they didn’t.
I don’t know how much the insurance would cost, but this grandfather borrowed large amounts for 2 grandkids.
Frankly, I think it was the bank’s error to lend with an elderly co-signer under these conditions.
Sounds like grandpa’s assets were put into a trust which directly went to his children. If so, then likely the “mom” who pressured grandpa to cosign will have to bail her kids out with her share of the inheritance.
In the end, this may actually be the more “fair” way. Otherwise, the loans would have gotten paid “off the top” of the inheritance, which would mean that his children who didn’t have kids with co-signed loans would have effectively had to help “pay off” those loans.
Imagine the anger if gramps had cosigned a bunch of outrageous student loans for one of his children’s kids and then his assets would have been used to pay them off after his demise. I imagine that there would have been some siblings crying, “foul”.