Parent Plus v. Private Loan... Please help

Paying for College
1

<p>Hi. The only thing that stresses me out about my son going to college is this loan situation. He accepted the $5,500 unsubsidized Stafford loan but we need about $15,000 more. We were approved for a Parent Plus loan but have not accepted/applied. Someone told me private loans were better and if he qualifies for the lower rates it looks like they are correct and they do not have the 4% fee the PP loan has. </p>

<p>A few questions...will applying for multiple private loans to compare rates do anything negative on his credit report? </p>

<p>What private loans should I apply for? There are negative reviews on all I have researched. </p>

<p>Are there long term negatives to private loans?</p>

<p>Should I give up, eliminate this stress and just do the Parent Plus loan?</p>

<p>Thanks for any help you can provide. I feel like I'm running out of time on this.</p>

2

<p>You have not yet been approved for the parent plus loan. The school just included it in your package. You still have to apply and get accepted for it. The credit check is not bad though. With that being said the interest rate for the loan is about 8%. </p>

<p>Private loans might have a lower rate, but you have to be careful with the terms. </p>

<p>$15,000 is a lot of money to take out per year. Over four years that is $60,000 plus interest.</p>

3

<p>If you are shopping for a loan it will have a minimal effect on your credit rating if you keep the inquiries within a short time period, like 30 days.</p>

<p>We did check out a parents loan from Wells Fargo, but honestly the rate they offered us was not low enough to make us feel comfortable with taking a variable rate loan, and the loss of protection that direct loans offer. So we decided to go with Parent Plus.</p>

<p>I don’t know what kind of rates your student could get from private lenders, we only considered it because we were looking at a fairly small amount and are hoping to get it payed off quickly.</p>

<p>But you do get offers back pretty quickly after you fill out the apps, so time really isn’t a problem, and the process of getting a Parent Plus loan is scary easy and quick.</p>

4

<p>Are you deciding between applying for a Parent PLUS loan and taking it out in your name (only option) and applying for a private loan in your name… OR between the Parent PLUS loan in your name and co-signing on a private loan in your son’s name?</p>

5

<p>I was going to have him apply for the private loan and co-sign on the application or take the parent plus loan. I am planning on making payments immediately. The 4% fee is throwing me off the PLUS loan.</p>

<p>I know it’s a lot over the years but it’s the same story…small college account plus market crash, unemployment, high rent, etc etc. He is a first gen student so not going to college is not an option! I’ve come to terms with taking loans over the years but just want to make the right decisions on the loans. </p>

<p>Also should we be taking future consolidation into consideration? I saw that federal and private cannot be consolidated.</p>

6

<p>So, you’re going to be paying back these Plus or co-signed loans? </p>

<p>You’re going to be taking on $60k of debt? Yikes. The payments will be like 2 extra car payments for at least 10 long years (in addition to any actual car, home, or other loans that you have.)</p>

<p>I realize that “not going to college” is not an option, but was this college his most affordable choice? Did he apply to any financial safety schools?</p>

7

<p>This is a California state school. Was the cheapest option other than living at home and going to a commuter college.</p>

8

<p>The other thing that concerned us about private loans is that if you are planning on borrowing for more than one year, which we are not, but you never know what is going to happen, wouldn’t your rates get higher every year because your debt to income ratio would go up? Or you might possibly even be denied, then you would be stuck going with the direct loan anyway and wouldn’t be able to consolidate the two. </p>

<p>I know a lot of people will tell you you shouldn’t be taking the loans, but I have no problem giving up extras for the next few years to make payments. I don’t see it as that much different than having lived without those same extras previous years to save. Our earning power is so much higher now than it was just a few years ago. And we are not giving up retirement contributions. It is definitely a personal choice that is not for everyone.</p>

9

<p>Don’t cosign – that is the SAME as taking out a loan in your own name, except you are giving the lender more people to go after – but you are still on the hook. The PLUS loan costs more up front, but it has more protections built in. Also, do find out when your first payment will be do. I took PLUS loans and remember that my first payments came due around February or March, even though the loans had been disbursed in September. So yes I did pay the extra origination fee, but there was some benefit because of the built in grace period. But that was before Federal Direct Lending - I don’t know if things have changed since then.</p>

<p>I agree with the others – $15,000 per year is a lot to borrow. Do you think that you could pay half out of pocket this year, and only borrow $7500? </p>

<p>Look at it this way: At 7.9% interest, the monthly payment on a $60,000 debt will be $725. If you can afford to make payments of $725 per month, that is $8700 per year. </p>

<p>But a monthly payment on $15,000 is only about $180 - over the course of a year that is $2160. If you can budget $8700 toward college loan debt – then in year 1 you could divide it by paying $7,000 directly to the college, and borrowing only $8000 (monthly loan payment under $100 - so net out of pocket for the year would be $8200)</p>

<p>If you can’t figure out a way to pay out that much now - how would you manage the full loan payment in 4 years? (And if that is the problem you are struggling with, that’s one more reason favoring the PLUS loan – the PLUS loan will allow you to change payment plans to opt for a longer repayment period if you need to; the private loan may not be so flexible). </p>

<p>I pretty much followed the plan I outlined above and ended up borrowing less than I had anticipated over the years, and also was able to pay back my loans much more quickly than anticipated after my younger child graduated from college. My d. had the full allowed amount of subsidized Stafford loans – but no more – so she was not overly burdened with loans when she started working. That is VERY IMPORTANT because she is now starting grad school – and looking to borrow more. </p>

<p>If you take loans out in your own name that doesn’t prevent your son from paying you back after school, if he is financially able. </p>

<p>If you are reluctant to take on that much debt yourself… then maybe your son living at home and commuting to a CC or CSU is the best route for your family. You need to think beyond the 4 years that your son will be attending college and look at the big long-term picture, and the role that high debt could play.</p>

10

<p>This is a California state school. Was the cheapest option other than living at home and going to a commuter college.</p>

<p>Calmom response:</p>

<p>If you are reluctant to take on that much debt yourself… then maybe your son living at home and commuting to a CC or CSU is the best route for your family. You need to think beyond the 4 years that your son will be attending college and look at the big long-term picture, and the role that high debt could play</p>

<p>I agree with Calmom…</p>

<p>Commuting to a CSU is not a bad option. If you “do the math,” you’re literally borrowing the room and board costs which for a UC is about $15k per year. Plus, your child is borrowing full Staffords.</p>

<p>I can’t imagine making $600 a month payments for 10 years just to have the “dorm experience.” Seems too pricey.</p>

<p>If you (the parent) can afford to pay the $60k loans (for room and board) then that’s totally your business - you know your own financial situation. </p>

<p>However, if the student is supposed to pay some/all of it back, then along with the Staffords, that is a lot to pay back and he may not fully understand how hard that will be as a newish grad.</p>

11

<p>Happykid went to our local commuting distance community college for the first two years precisely so that we could avoid the kinds of issues you are facing. During that time we socked away as much as we could, which has meant that for the last two years at her state U, she has only borrowed the maximum federal loans, and we have not had to borrow a penny. Unless you can readily pay down that $60k you are contemplating taking on, I encourage you and your son to reconsider his plans for this fall.</p>

<p>Many colleges and universities have installment plans, and will allow you to pay the costs of the year that way. If you can pay some of the bill out of pocket or out of savings as you go through the year, you may find that you needn’t borrow the sum that you are currently considering.</p>

12

<p>Can a parent take out a Parent Plus loan after the college year starts? Let’s say classes start in September and then after the holidays you decide in January you want to apply for a Parent Plus loan for the remainder of the academic year. Can you? Thanks.</p>

13

<p>"1) A few questions…will applying for multiple private loans to compare rates do anything negative on his credit report?</p>

<p>2) What private loans should I apply for? There are negative reviews on all I have researched.</p>

<p>3) Are there long term negatives to private loans?</p>

<p>4) Should I give up, eliminate this stress and just do the Parent Plus loan?"</p>

<p>1) Applying for a number of school loans is not going to badly impact your son’s credit report when it becomes important several years later when he graduates and is looking for a job, wanting to buy a car, rent an apartment, buy a house, wanting a job in some industry that does careful background and credit checks. Having a large loan balance owed will have a huge impact and can hurt him for a long time if he can’t pay it off right away. So it’s not the inquiry but the consequence, the successful one, I might add, that is the problem. If your kid is looking for a job in certain political, financial industry, government sectors, they don’t like those who owe a lot of money. Heck, even in financing a car, the debt on his head will make a difference as to the deal he gets. So the answer to your first question is “NO” but that’s the wrong question to have asked.</p>

<p>2&3) My opinion is that you should see if you qualify for PLUS. That way YOU owe it all, it does not go on his credit history AT ALL. And that seems to be a major concern of yours. You die, or he dies, it’s forgiven. You are a deadbeat–he’s still off the hook. Yes, all loans have their drawback. That’s a fact of life, The problem with school loans is that they are virtually undischargeable. And because they are federally backed, they can go after your social security, tax refunds and other things that would be very difficult for regular private lenders to do. Even these so called private school loans are federally backed. That’s why they are even available to most folks. You try to to get an unsecured loan for yourself if you think these loans are bad. </p>

<p>3) Yes, you owe the money for a long time. For the non PLUS cosigned ones, your kid is still on the hook if you die. If you screw up and miss a payment, they slam both credit reports, yours and his. </p>

<p>4) IMO, yes, You are concerned about your kid’s credit. You can’t get anything else on your own. If you can, go on ahead. Some parents can and do. If not, then you that’s all that;s out there without tying your kid’s credit with ours.</p>

<p>You can generally apply for PLUS until the end of the school year or 6/30 of the the year the school term ends and get the money, but make sure that you check with the school the June 30 deadline is the federal one and is the absolute deadline, but if the school shuts down the processes before that, you can have issues.</p>

<p>My advice to OP is to take the PLUS and start paying on it right away. Then by the time the kid graduates, you are more than a third of the way to paying off that first year commitment. And you will also have that monthly reminder of how painful it is to pay off any subsequent loans. It’s so easy to borrow, borrow , borrow when you aren’t going through the pain of repayment. You’ll get discounts on the interest rates too, if you pay back on time, early , do direct pay, etc, etc. which all helps bring down that cost. Plus you might be able to deduct the interest depending on your tax situation.</p>

14

<p>60k+ in parent loans would have been too much for our family.</p>

<p>We struggled to piece together in state tuition and room and board for our son.
Divided his not large enough 529 by 4, paid that to school each yr.
DS took max Staffords in his name. We paid remainder out of current income and parent loans totaling 15k. Son went on to funded masters and now is easily paying Staffords.
We still have 11k left on parent loans but very low per month and tax deductible.</p>

<p>Each family is unique. Our son could not attend an expensive private he was offered a slot
in. If your family is comfortable with 60k debt, great. If not, are there other choices?</p>

15

<p>Gunnerz-- the answer is yes, both as to to the Stafford and the PLUS loans – you can wait until later in the year to borrow, if you are not sure how much you will need. Talk to the financial aid dept. at the school to find out exact deadlines. For the PLUS loan its a good idea to run a credit check in advance to be sure that you will be approved – your debt to income ratio doesn’t matter, but you can be turned down if your credit score is bad.</p>

16

<p>60k+ in parent loans would have been too much for our family.</p>

<p>It probably is for 99% of families…especially if tere are other kids to put thru college…</p>

<p>I’m struck by the mom’s statement that this is the first to go to colleg in the family. It seems that their excitement and expectations are getting in the way of realizing what they’re getting themselves into. They are literally borrowing $60k for R&B when there are commutable schools! </p>

<p>At a minimum, go to a CC for two years, save some money, and then use that money for the dorm experience for the last two years.</p>