<p>Should I have my parent apply for a PLUS loan, or should we look into private loans? The rate on the PLUS loan is high, but it's not a variable rate. If I don't get any of the scholarships I've applied for, then I will need about $9,000 more for next year from either a PLUS loan or private loan. Also, I am going abroad next year and I have to have my finances secured to get a visa, so I can't wait until late summer to finalize loans. What if I choose a PLUS loan, and then receive scholarship money (I won't hear back from most of them until the summer). Can I then deny part of the PLUS loan? Could I possibly do the same with a private loan?</p>
<p>You don’t apply for PLUS. Your parents do, and they’ll have to apply now for you to have the money in your account for the summer. My son did this because he has an opportunity for late summer and needs to have the money available. We took out the PLUS and it went towards the last tuition payment for the year, with $1500 extra which we just got. We then will give the amount my son needs, as it is his loan. We had him borrow $5500 for us in the Staffords because the interest rate was lower, so we’ll just swap loans. I deliberately took out $5500 in the PLUS so that it was an even swap though he did not need that full amount. He can pay back what he can at the end of the summer.</p>
<p>You can just pay back whatever you get. You can change the amount, I believe right up to the point that the school verifies it. Once you pay the origination fee on it, it’s yours, I think. You can repay it right away.</p>
<p>Also, I am a Texas state resident, as are my parents, but I don’t know if I qualify for the BOT or CAP Loan because I’m going to NYU. I’ll remain a Texas resident (technically) while I go to NYU. On the loan website, it says you only have to qualify for in state tuition to apply for the BOT or CAP loan, but then you have to choose from a Texas college.</p>
<p>Requesting (or accepting) the PLUS loan is not an obligation to actually take the money – the parent can reduce the loan amount or forego the loan altogether pretty much up to the time that the funds are disbursed. There are some protections within the PLUS loan system that may make them more attractive than some private loans – for example, if a parent loses their job or becomes disabled, they options for deferral or repayment that they may not have with a private lender.</p>
<p>I’m wondering the same question. Does it pay (no pun intended) to shop around for interest rates on private loans vs. PLUS? According to Zac Bissonnette, that’s territory that no college freshman should enter. :)</p>
<p>The reason people say this, is because though most college kids are adult by definition, for just about everything else, they are not independent for college finances. It is the parents’ responsibility and call. Financial need is determined on the parents’ income and assets. If the parent won’t cooperate or pay, tough for the kid. Since most high school kids do not know the ins and outs of the family financial situation and it is often very private information in families that parents do not want to share, the parents are the ones who have to shop around and come up with what is the best deal, just as they have to do for a mortgage, car loan or any other financial loan or transaction. It’s their job, responsibility, etc.</p>
<p>You can get lower interest rates sometimes on private loans (depending on your parent co-signer’s credit rating). However, private loans are not as flexible as PLUS loans (there are no changes to the terms, based on hardship or death of the student, for example, unlike PLUS loans) and often you can’t consolidate private loans when you are finished (unlike PLUS).</p>
<p>I think private loans are riskier than PLUS loans because the terms are rigid and inflexible. If I lose my job or my spouse becomes disabled, PLUS will work with us to moderate the terms. Private lenders don’t care and won’t work with you. You will owe that money, no matter what.</p>
<p>There was a story in the news around here about a local college student who was killed in a car accident. The parents were on the hook for about 70K of private loans that they had co-signed for the student. The father was unemployed and the whole family was just in a state of shock. It didn’t matter though; they still had to pay those private loans for the next 15 years on behalf of their dead son. It was dreadful.</p>
<p>PS if your parent co-signs huge loans with you, you ought to be carrying life insurance.</p>
<p><em>waves</em> Hi, college financial aid officer here. One really important thing to keep in mind is the difference between qualifying for a PLUS Loan and qualifying to be a co-signer on a private loan. Your parents may be willing to do either one, but they may not be able to be approved as private loan co-signers for all the years you’re in school.</p>
<p>Here’s why: When checking a person’s credit to see if that person can borrow a <em>PLUS Loan</em>, the Department of Education doesn’t examine that person’s debt-to-income ratio. That means that someone has a chance of getting approved to borrow a PLUS Loan even if their income is low or even if they have a lot of debt (or even both). That also means that that person has a chance of getting approved for PLUS Loans several years in a row, since the fact that they already have debt (such as a previous PLUS Loan) isn’t taken into consideration.</p>
<p>However, when applying to be a co-signer on a <em>private loan</em>, the lender will look at that person’s debt-to-income ratio. So a person won’t get approved if their income is too low, or if they have a lot of debt.</p>
<p>Here’s where it gets tricky, and has been a problem for my students. If a parent co-signs a private loan for freshman and sophomore year, then the loan they co-sign shows up on their debt-to-income ratio. So we’re seeing a lot of cases where students’ parents co-sign a loan for two or maybe three years, and then suddenly it’s their junior or senior year and their parents can’t get approved to co-sign any more loans. They either have to find a new co-signer, or drop out of school because they can’t pay.</p>
<p>I’m not saying you shouldn’t use private loans–some of them are pretty good deals, considering how low their interest rates can be–but it’s important to consider whether it’ll be a sustainable solution for you for four years.</p>
<p>PLUS loans are on Parent credit report only.</p>
<p>Private loans are on both Parent and Student credit report. </p>
<p>If a parent is getting the loan with plans on parent paying it off over say 10 yrs, when the student graduates the student have both their own stafford loans and the parent plus loans show up on their (student’s) credit report. That debt on the credit report may cause problems for them until the private loan is paid off (problems with getting car loans, renting apartments, buying house, etc).</p>
<p>Personally, I’d recommend PLUS loans, the private loans aren’t that much of a better deal to be worth it. Also, if the parent dies the Plus loan won’t go to the student for payoff, the estate would have to pay it if there’s money.</p>
<p>For the reasons given, unless the parent is in strong financial shape and has good sources for these loans, PLUS is preferable IMO most of the time. </p>
<p>However, Chory–welcome to the board, have not “met” you yet-- the parent can switch to PLUS when the time comes that the debt to income ratio shows up and he can no longer get the private loans.</p>
<p>What is truly a consideration in Chory’s post is that this information is going on your credit report, make no mistake of it. A kid getting a parent to co sign is getting those amount on their back and if they want to rent, buy, or do anything both parent and child are on the hook. Also I believe there is an insurance element to PLUS so that if the parent passes away, the debt is forgiven. Not so with these cosigned private loans where both parties on the hook forever.</p>
<p>My close friend co signed, something she truly should not have done, for her daughter , and is now dxed with Lupus, lost their family business, the husband left and she can barely work. Too bad. Still owes the money, both she and the daughter who has only found part time work in the last few years. They have been turned down for apartments and other opportunites due the the $90K in debt they are carrying.</p>
<p>A question, Chory, if someone has a cosigner for the PLUS since the person was turned down by PLUS due to adverse credit, but found a relative to co sign,does that show up on that co signer’s credit report (I am sure this is a yes) and what if the primary borrower should die, is the co signer on the hook? Also isn’t the parent on the hook with PLUS if the student should die?</p>
<p>Actually, I know the answer to one of my questions–if the student dies, the PLUS loans are forgiven. I suspect the guarantors on the PLUS are on the hook if anything happens to the primary lender.</p>