<p>We did the same type of cost comparisons as Calmom. However, in our case, we didn’t have the money “upfront” to pay for the full term, but we DID have it monthly. We opted for a tuition payment plan that divided the money we had to pay to the college into 10 equal payments. ALL (read that ALL) of my paycheck went into one account…and it went out of the same account auto withdrawal each month to the tuition payment company. This worked for us in lieu of taking a loan each year…and having to make payments on that.</p>
<p>I’m happy to say…we have finally made our LAST undergrad payment…WOOHOO. You’ll get there too.</p>
<p>Anyway…if it’s a matter of not having the money to make a full term’s payment up front…but monthly you can do this…check your college website to see if they participate in any of the tuition payment plans…most do.</p>
<p>^ Thumper, I suppose I’ll also have over 10,000 posts when I make my last undergrad payment… :)</p>
<p>More seriously, I can probably pay about 2/3 of our EFC if I use a 10 or 12 month plan. Is there way I can use that plan AND take out PLUS loans for the difference? How would that work?</p>
<p>Yes, of course. You simply tell them how much of a PLUS loan you want, and sign up for the payment plan. So lets say that you have to pay $15K – you opt to take a $5K PLUS loan and you sign up for the 10 month plan at $1000 per month. About February or march your PLUS loan payments kick in, but for a $5K loan you are looking at payments of roughly $60 - so no big deal.</p>
<p>Now, the following year because of the PLUS loan payments you might decide that you need a slightly larger loan, lower monthly payment. So, hypothetically, in year 2 you borrow $6K in PLUS loans, pay $900 a month to tuition (+ the $60 PLUS payment until March, when the 2nd year payments of, say, $70 kick in and you have a $130/month payment). </p>
<p>So lets just say, hypothetically, each year you borrow $1K more than the previous year. After 4 years you would have paid out in cash $10K + $9K + $8K + $7K ($34k total) – and you would have taken PLUS loans of $5K + $6K + $7K + $8K ($26K total). Your kid graduates, you’ve got a PLUS loan payment of ~$320/month. As opposed to borrowing $15K for all 4 years, $60K total, with a monthly payment in the end of ~$730.</p>
<p>One thing that affected our decision about PLUS versus HE, is the fact (correct me if i’m wrong) that PLUS loans end at the death of the borrower. Since Hubby and I are also approaching retirement, we took one kid out in my name and one in his name, hoping that debt wouldn’t be thrown onto surviving partner. Also, as many mentioned, if we run into serious health issues, PLUS can be put on hold or reduced, HE cannot.</p>
<p>All the reasons mentioned are the very same reasons we took the PLUS. We also wanted to leave the equity alone in case of other emergencies like home repairs, etc.
The PLUS does allow for hardships. With this economy, and all the things that are happening with student loans, who knows, they may make a provision to write some of it off in the future.</p>
<p>I believe that the PLUS loans ends with either death of the borrower or the student.</p>
<p>tammo1: You are nearing retirement. Unfortunately FAFSA and CSS look at your current income, not your projected income in say 2-5 years. So based on your current income, the EFC is high. When you do retire, you can appeal and your aid could change, but I would not count much on it. For example one time payments or cashing in leave could all affect the result. Also remember you need money for the long haul. You cannot take chances, my suggestion would be to stick to the lower cost options.</p>
<p>I did not know that Plus loans were deductible in taxes, for if they are one advantage of Home equity goes away.</p>
<p>Also, you can do both, take a small home equity loan and a Plus loan, so you still preserve the equity in case you need it and get lower interest rates. The downside is they may not give an increase in the home equity loan when you most need it.</p>
<p>Two other perhaps considerations to add to calmom’s excellent analysis:</p>
<p>1) The deduct-ability of PLUS loan interest is subject to a phase-out, based on AGI.</p>
<p>2) You don’t need to borrow all the funds on Day 1 for the school year. Colleges only bill you by term, either semester or quarter, so you could take out separate loans by term. For example you could borrow $15k on a PLUS in August for the first semester, and then wait until late Dec for the second loan for semester #2. If on the quarter system, you could borrow $10k in Sept, $10k in Dec and $10k in March. (This will reduce your payments for the first xx months in Year 1.)</p>
<p>“(This will reduce your payments for the first xx months in Year 1.)”
How will this work? If you take PLUS for the whole year it gets disbursed, let say twice, for the fall and spring semester, but your payments start after final disbursement. How taking two separate loan be advantageous?</p>
You can deduct the interest on $100,000 of home equity loan principal that is used for something other than to cover the purchase price and improvements to the house, for example to buy a car or pay for college.</p>
<p>If you are not already itemizing deductions (that is, you take the standard deduction), or if your income is at the level where itemized deductions are getting phased out, then you lose some (maybe all) of the value of being able to deduct HE loan interest.</p>
<p>Refinancing a mortgage should reduce your monthly payment, perhaps significantly. Lopping $400/month off your payment should free up $4800/year to help pay for college. You won’t save enough to help with the tuition bill due later this summer, though. When you no longer have children in college you can accelerate payments on the principal if you like. I have taken an approach similar to this and it has worked well. It minimized the amount I had to increase the mortgage by when refinancing and provides a lot of savings power and financial flexibility. I don’t have to worry about a HELOC being closed out either. Not everyone is in a position to do this, but you sound as if you might since you have owned your house for many years.</p>
<p>The present financial aid system does not penalize frugality; it expects frugality. Income above a certain level gets hit hard. Assets incur a smaller hit, 5%-6%. But lowering monthly expenses escapes FA “punishment.”</p>
<p>We will have our home paid off in less than a year. It seems like a no brainer to refinance our home on a ten year mortgage and pull out the $100K needed to cover her expenses at a top private U instead of using a plus loan. Looking at 4% vs. 8.5% and the additional tax write off for mortgage interest that we will soon be losing seems to be a no brainer. In our income bracket, I have a feeling we lose the ability to write off the plus loan interest. I understand the risks involved- bankruptsy divorse, death. In our situation, do you think a refinance is the best way to go? I just want to make sure we are doing the right thing.</p>
Seems like a good plan in your situation - you get a much lower interest rate, and get to deduct it, too.</p>
<p>4% seems pretty low for a mortgage though, especially for only $100K - is this a variable rate? That carries some risk.</p>
<p>If you are comfortable with a variable rate, you might want to consider getting a HELOC (if legal in your state) rather than refinancing, for a couple of reasons: You don’t pay interest on the money until you use it, and the cost is generally much lower than for getting a mortage. In fact I don’t think I’ve ever paid a dime in closing costs or fees to open a HELOC (not even an appraisal fee), whereas the mortgage will probably cost several thousand at least unless you go for a higher interest rate.</p>
<p>nkl811
We thought about doing a refinance, but when we really thought it out, The Plus is so much more flexible. We deferred our payments and if at a later time when it is time to pay off than we can always do a refi or deal with the monthly payments or request a lower monthly payment. If anything happens to the borrower or the student, it ends. If you should have a financial hardship,it can go into forebearance. A refinace, you are locked in and really don’t have too many options if your child drops out. Also, we wanted to leave the equity in the house, in case we needed emergency money,repairs, etc.</p>
You can hedge this scenario by buying a 10-year level-premium term life policy, for $100K probably costs less than $200/year.</p>
<p>To pay thousands or 10’s of thousands extra in interest on the slim chance of death does not seem like a good investment to me.</p>
<p>I don’t think nkl811 will be tapping all their equity either (or even close), since their house is almost paid off.</p>
<p>Everyone’s situation is different of course, so you have to do what is best for you, but it this case using house equity to finance their kid’s education seems very reasonable.</p>
<p>Thanks so much for the input milkandsugar and notrichenough. The rate is actually 4.375 and it is fixed. Notrichenough is right, we do have alot more equity in the house than what we are pulling out, so we could take out a home equity loan if needed on top of the mortgage. If my daughter decides to go to the state school after one year, we could always pay off the mortgage sooner by paying extra principal payments. The death issue is definitely a benefit from the plus loans, but hopefully we aren’t going anywhere anytime soon:) The idea of extra life insurance is a good plan.</p>