Private Lenders / Plus Loan

Paying for College
1

<p>Hello. I just joined today and this is my first posting.</p>

<p>My daughter is graduating from high school and wants to attend an out of state, state college this coming fall. </p>

<p>My intent had always been to pay for most if not all of my children's college educations. The twists and turns of life made it impossible for me to save for this. I want to do whatever I can to make this happen for her, whether it be taking out a Plus loan or her getting a private loan with me as a co-signer, and I would help pay some if not all of these loans back later when my financial situation will be back on track and I'm able to pay.</p>

<p>Two years ago my business took a big hit and my income was cut in half. I re-married 3 years ago. My husband and I have been doing all that we possibly can to avoid losing our home to foreclosure and to avoid losing 3 rental properties that we own and rent out to families. We have had to dip into our savings each month to pay bills on time and savings will soon run out. So at this time, I can not possibly make college payments while we are trying to get our business back in full swing or find new jobs. We hope we can be back to making the income we were at previously to comfortably make ends meet again, plus save for our future and take care of the kids college educations.</p>

<p>The state college she has chosen to attend next fall is reasonable. She has been offered a few different grants, federal subsidized loan, federal unsubsidized loan, a pell grant, perkins loan. But we need to still come up with $12,000 for the first year.</p>

<p>My credit score is somewhere between 650 to 680. I have no delinquint accounts, but the debt-to-income ratio is not looking so pretty. Can anyone recommend reputable private lenders who might work wtih someone like me with this credit score range, and not-so-pretty debt-to-income ratio? Or any other advice based on the info I've provided, would be greatly appreciated. I am stressed out of my mind to think that our unfortunate financial circumstances due to the economy could prevent my daughter from being in the college she wants so much to be at.</p>

2

<p>I have no personal experience with the PLUS loan but found some information on a PLUS lenders site that might help</p>

<p>“What is the required credit score for the Parent PLUS Loan?
Eligibility for the PLUS Loan depends on a modest credit check that determines whether the parent as an adverse credit history. An adverse credit history is defined as being more than 90 days late on any debt or having any Title IV debt (including a debt due to grant overpayment) within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off.”</p>

<p>They also indicated that 675 or higher was not a problem, 625 would require scrutiny and below 600 would be denied outright. I would suggest you do a google search and see what a few lenders say but it looks like you might be ok. If you are denied a PLUS the student is allowed to take out additional loans - not sure of the amount.</p>

3

<p>Don’t do it. There is no reason for a student to go to a public U in another state. Have her look in-state where it is probably less expensive. If she hasn’t applied to an in-state school have her look at the local community college. You need to consider the entire family’s well being, not just your daughter’s.</p>

4

<p>*The twists and turns of life made it impossible for me to save for this. I want to do whatever I can to make this happen for her, whether it be taking out a Plus loan or her getting a private loan with me as a co-signer, and **I would help pay some if not all of these loans back later when my financial situation will be back on track **and I’m able to pay.</p>

<p>Two years ago my business took a big hit and my income was cut in half. I re-married 3 years ago. My husband and I have been doing all that we possibly can to **avoid losing our home to foreclosure **and to avoid losing 3 rental properties that we own and rent out to families. We have had to dip into our savings each month to pay bills on time and savings will soon run out. So at this time, I can not possibly make college payments while we are trying to get our business back in full swing or find new jobs. We hope we can be back to making the income we were at previously to comfortably make ends meet again, plus save for our future and take care of the kids college educations.*</p>

<p>*The state college she has chosen to attend next fall is reasonable. She has been offered a few different grants, federal subsidized loan, federal unsubsidized loan, a pell grant, perkins loan. But we need to still come up with $12,000 for the first year.
*</p>

<p>There are SO MANY red flags I don’t know where to start. </p>

<p>You’re having financial trouble, you want to take out Plus loans or co-sign loans that you HOPE that you’ll be able to help pay back. You’ve had to dip into savings to avoid foreclosure. Your D qualified for Pell, which suggests your family income is quite low.</p>

<p>Sorry, but borrowing money at this stage is so dangerous I can’t hardly see straight to type this. </p>

<p>Your D is expected to borrow the full Stafford plus Perkins (so about $30k+ by graduation). That alone is a lot for any new grad. She can’t afford to pay back more than that. If she has co-signed loans that she and you can’t afford, disaster!!!</p>

<p>And…what if you can only qualify for the first year, but not years 2, 3, 4? Your credit score is going to take a major hit after each year’s loan. After the first year, the banks may say, “no, you don’t make enough considering the debt you’ve already taken on.” At that point, your D would have to come home and go local anyway. </p>

<p>What if when the loans come due, your income is not where it needs to be? What about paying for the younger kids? How will you do that if you’re also paying back loans at the time?</p>

<p>This is SUCH a bad idea…</p>

<p>Paying out of state fees is so unnecessary. </p>

<p>What is your daughter’s likely major and career? How much do you think she’ll be earning once she graduates. Where else was she accepted to?</p>

<p>I know that you want to make your child happy, but it’s a parent’s responsibility to be the level-head in these situations and not let them (or you) get into a stangle-hold of debt. :slight_smile: )</p>

5

<p>Your D is on track to borrow about $30k in Stafford and Perkins (maybe a bit more)</p>

<p>This would be her situation (assuming that YOU would be paying the Plus loans.)</p>

<p>Loan Calculator</p>

<pre><code>Loan Balance: $30,000.00
Adjusted Loan Balance: $30,000.00
Loan Interest Rate: 6.80%
Loan Fees: 0.00%
Loan Term: 10 years
Monthly Loan Payment: $345.24 For TEN years
Number of Payments: 120

Cumulative Payments: $41,428.97
Total Interest Paid: $11,428.97
</code></pre>

<p>Note: The monthly loan payment was calculated at 119 payments of $345.24 plus a final payment of $345.41.</p>

<p>It is estimated that your daughter will need an annual salary of at least $41,428.80 to be able to afford to repay this loan.</p>

<hr>

<p>Now for the $12k per year gap…a minimum of $48k at graduation (either Plus or private)
The amount will likely be more than $48 because school costs rise every year.</p>

<p>Loan Calculator</p>

<pre><code>Loan Balance: $48,000.00
Adjusted Loan Balance: $48,000.00
Loan Interest Rate: 9.80%
Loan Fees: 0.00%
Loan Term: 10 years

Monthly Loan Payment: $629.02 for TEN YEARS
Number of Payments: 120

Cumulative Payments: $75,482.29
Total Interest Paid: $27,482.29
</code></pre>

<p>Note: The monthly loan payment was calculated at 119 payments of $629.02 plus a final payment of $628.91.</p>

<p>It is estimated that you will need an annual salary of at least $75,482.40 to be able to afford to repay this loan.</p>

<p>The Plus Loan above (or private loan cosigned by you) is in addition to loan above. It’s about the cost of 2 car payments for 10 years. How likely is it that you will be able to afford the equivalent of 2 car payments in addition to all your family’s expenses, other children’s college costs, and any real car payments for 10 years?</p>

<p>Obviously, your D could not afford to pay back any of this second debt since she’ll already be overwhelmed with her Stafford/Perkins debts.</p>

6

<p>I second Erin’s Dad & M2CK…if you’re worried about finances now (and many of us have been there) the last thing you need to do is think about over $50K in loans for an undergrad degree…on top of the loans she’ll have! It will take you some time to recover from the current situation and you and your husband must plan for your own financial future as well. It’s perfectly okay to draw the line at parent loans…in fact it’s often reasonable and wise to do so! If you think about it, it’s likely she’ll never benefit more from the OOS public experience in any meaningful way than she would from attending one of her instate choices and you all will be suffering the financial stress for more than a decade…it’s so not worth it!</p>

<p>Aside from paying the increased tuition/fees for being OOS, have you considered the amount that she will forfeit in your state’s student aid? I’m assuming you’re in a state that still provides decent aid to lower income students, though I know some have drastically reduced their programs in the past two years. Does she have an instate financial safety that would still give her a good education? You don’t mention merit aid at the OOS so, if that’s not a factor, could she at least do a year or two instate and then revisit the OOS idea as a transfer possibility? Or do instate for undergrad and go wherever she wants as a grad student?</p>

7

<p>If you are going to take out a loan, a Plus loan is usually a better deal interest wise than a private loan (although I expect to be contradicted on this point by certain personages). As NewEng said, the Plus loan credit check is exceedingly lenient. I don’t want to exaggerate, but many people who are hoping to fail the credit check in hopes of getting increased unsubsidized Stafford loans limits inadvertently pass. If this is your plan, it is better to negotiate with the financial aid administrators at the college ahead of time so you don’t have to run the risk of taking the Plus loan when you want the unsubsidized Stafford loan instead.</p>

<p>I do agree that there should be a serious consideration of going to an OOS public school.</p>

8

<p>Thanks to all of you for your input. It’s not like I didn’t realize all of this. I guess part of me has been in denial and not wanting to face the reality of it. Seeing the facts in print is the wake-up call I needed. Not looking forward to discussing this further with her. She doesn’t want to even think about community college when many of her friends are going to some of the best ivy leagues.</p>

<p>As far as the out of state, state school. It is actually a better value than our in-state colleges.</p>

9

<p>It’s a hard thing for a parent and you have my heartfelt best wishes. I’m willing to bet that she will thank you many times later on that you didn’t allow her to bury the family in debt. Did she apply to any schools that offered her merit aid or that meet a high percentage of need? If her only other choice is a cc, she may be eligible for merit money at a 4-year school if she performs well and gains an associate’s. If she’s completely unwilling to attend a cc, would she consider taking a gap year to work and save some money?</p>

10

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<p>I’ve seen you do this calculation in dozens of posts recently, and it just doesn’t make any sense. It assumes that the borrower is going to have to be completely self supporting. Obviously this borrower (and many others) have the support of their parents. If this girl will owe $345 per month, which is $4,140 per year, she would only need a salary of $10,000 or so to pay it back, assuming she lives at home with her parents. It’s not as if she is going to be booted out of the house…her parents <em>want</em> to help her. $41,428? I can’t even imagine where this number is coming from…is someone assuming she going to buy herself a house or what?</p>

11

<p>The $41,000 salary is based on what a reasonable lender would require in salary income in order to support a loan of this magnitude for non-mortgage purposes. Most of us assume that our kids aren’t going to be living with us after graduation from college, and the few that do probably are having a great deal of trouble finding jobs.</p>

<p>$345 a month is more than a car payment for most young grads. It is easy to forget all the other costs a new employee in the workplace faces: payroll taxes, federal and state taxes, commuting costs, clothing costs, health insurance costs, and so on. The money never goes as far as people think.</p>

<p>To the OP: The OOS school sounds undoable, and your finances much too precarious to take on more debt right now. How awful for her if in a year you didn’t even qualify for the second year of the loan. If you can post some information about your state, the major(s) she might be interested in, her academic performance and test scores, maybe some of the folks here can suggest some possible alternatives.</p>

12

<p>*Obviously this borrower (and many others) have the support of their parents. If this girl will owe $345 per month, which is $4,140 per year, she would only need a salary of $10,000 or so to pay it back, assuming she lives at home with her parents. It’s not as if she is going to be booted out of the house…her parents <em>want</em> to help her. $41,428? I can’t even imagine where this number is coming from…is someone assuming she going to buy herself a house or what? *</p>

<p>There is NO GUARANTEE that a new graduate can or will want to live at home for ten years after graduation to pay off their debts.</p>

<p>Many new graduates can only find jobs in other towns/states which require them to live elsewhere. And, many new graduates are in relationships and don’t want to move back home with mommy and daddy for several years.</p>

<p>Yes, the income needed assumes that the person can only reasonably dedicate 10% (at most 15% ) of their income towards students loans because the term is long and the person usually has rent, food, utilities, car, insurance, clothing, etc, to also pay for. </p>

<p>If this girl will owe $345 per month, which is $4,140 per year, she would only need a salary of $10,000 or so to pay it back, assuming she lives at home with her parents.</p>

<p>Ha Ha… How many people want to go to college and then have a major chunk of their income go towards student loans for 10 years? What a miserable existence that would be. </p>

<p>And, yes, there can be a reasonable expectation that a college grad might purchase a home within 10 years of graduating.</p>

13

<p>This is assuming that payments are only made under a traditional payment plan (120 payments) and not under IBR/ICR. However, those options are available for students who need them and one might also consider the availability of other repayment options, such as loan forgiveness, for certain majors. I also think the calculators are overly simplistic, but a good starting point for those considering the ramifications of their decisions. As with anything else, it’s always best to step back and give it the old “reality check”! </p>

<p>For example, although demand has levelled off in some areas, healthcare professionals (MD, PA, PT, PharmD, etc.) often receive signing bonuses, enhanced benefits, and other loan repayment incentives in addition to their starting salaries. It’s not unusual for them to pay off $100K in loans in their first five years out of school and many are willing to live simply for a few years for that reason…$100K is not an unusually high amount of debt for those with 6 or more years of school. For those with lower demand/salary fields who are expecting to work in public service jobs (ie. hospitals, non-profit agencies, government entities, etc.), they would be eligible for loan forgiveness after 10 years, and IBR limits their monthly payments to 15% of income. Although nothing in life is guaranteed, these factors may make a huge difference for a student, such as the OP’s daughter, who may not otherwise be able to afford college at all. While there just isn’t a good “one size fits all” answer when it comes to debt, I think borrowing no more than the (well-researched) average starting salary for the expected field and region is a good rule of thumb. Just my $.02!</p>

14

<p>sk8rmom, thanks for mentioning the IBR/ICR repayment plans. As much as I hate loans, I know <em>from experience</em> that these plans are out there and make a difference. The whole point of the new income-sensitive repayment plans is that students are able to avoid default on the loans caused by not making enough money out of school to pay for the loan load. They also allow folks to have children, compensate for job loss, all sorts of things. I feel like on CC, people just ignore the income-sensitive plans. Yes, I know that they take longer to pay off, but they’re out there and I appreciate you reminding everyone of that.</p>

15

<p>rmavb1118: Your daughter may not want to hear all the cautionary advice about not going into debt now, but she will undoubtedly thank you later for being prudent. I completely agree with mom2collegekids - your situation is too fragile to take on more debt.</p>

<p>You say the OOS school is a better deal and your daughter doesn’t want to go to community college; how much effort have you put into getting the best possible FA package from your in state school? Even though the in state school may be more expensive, they are “yours”, you pay taxes that support them. Before resorting to community college (and there’s nothing wrong with that if it’s your best money saving option) I would really work at getting the best deal possible from in state U. After May they will begin to experience a bit of the summer melt, when scholarship money previously allocated to other students again becomes available because some of those kids have elected not to enroll. Go after those potentially available dollars, get on a first name basis with your in state FAO. Good luck to you!</p>

16

<p>Again, I want to thank you all for taking the time to chime in. Still reading, re-reading, to process it all.</p>

<p>We are in New England. She is an artist (a very good one who has received many awards) and wants to teach children art. So, not a big money field to help me pay back huge loans in 5-6 years (unless she makes it big on freelance work). She actually received a very nice package from a prestigious private college in our state. With what they offered, we’d have had to come up with only $12,000/year plus a few thousand in subsidized/unsubsidized govt loans for this $50,000 year tuition/room/board school. This private college offered her a lot more in scholarship/grant $ than our in-state state college. She decided against this private school and is set on the $26,000 year tuition/room/board out of state state school just because she wants to get out of our state. She said she would rather not go to college her first year and instead work full time if she cannot go to school outside of our state. Yes, very immature</p>

<p>I was surprised that she qualified for a pell grant. On paper right now, our financial situation is a mess because part of our business is in real estate and we all know what a dive real estate has taken, especially in some of the southern states where we have some properties. Our income is in the middle to upper class level. But when balanced with our real estate losses and other business losses, it is definitely looking like a huge mess currently. But we sure didn’t start out that way a few years ago and were in such good shape that I felt my children’s college educations would be easily mostly paid for. </p>

<p>We are doing everything we can to not lose our rental properties…I have 3 and my husband has more. If the were to pick back up and real estate was booming again in a few years and we could fill all of our rentals with paying occupants (instead of dealing with deadbeat renters which has cost us a fortune to take several renters to court for evictions plus structural damages to our properties), paying off hers and others student loans wouldn’t be an issue. It’s a gamble I just don’t know if I can take.</p>

17

<p>She actually received a very nice package from a prestigious private college in our state. With what they offered, we’d have had to come up with only $12,000/year plus a few thousand in subsidized/unsubsidized govt loans for this $50,000 year tuition/room/board school.</p>

<p>that’s the one to take.</p>

<p>I’m surprised that a family that owns several rental properties would qualify for Pell. That’s unusual.</p>

18

<p>You say that she’s immature. Well, that pretty much says that she doesn’t (right now) have the capacity to make a logical decision. Declaring that she is going to ignore an excellent offer because she simply wants to go out-of-state is basically equivalent to a four-year-old’s temper tantrum.</p>

<p>If you don’t sign the loan paperwork, she won’t be going to the out-of-state school. I wouldn’t under the circumstances you describe. If she doesn’t want to take the in-state option, then maybe it is time for her to get a job, pay rent, and get a handle on the real world.</p>

19

<p>She decided against this private school and is set on the $26,000 year tuition/room/board out of state state school just because she wants to get out of our state. She said she would rather not go to college her first year and instead work full time if she cannot go to school outside of our state. Yes, very immature</p>

<p>She’s seeing if you’ll fold…don’t fold…hold firm. It’s her decision if she decides to miss college this year.</p>

20

<p>Oh, she is definitely wanting to see if I will cave. She has worked her tail off to maintain a high GPA for the last four years, been involved in every extracurricular school activity she had time for and won many awards for her art. She reminds me of these things over and over, thinking I don’t want to see her waste any of this and that I will definitely cave and sign off on loans so she can go where she wants to go. And yes, I couldn’t have said it better myself that this behavior has been equivalent to that of a 4-year-old child having a tantrum. </p>

<p>She will have to take the chance of losing out on this golden opportunity with the private college, and maybe going nowhere her first year, and there will be no one to blame but herself. At this point, I am using tough love and she may just have to learn a lesson the hard way.</p>

<p>I have found out recently that so many other kids she knows are in the same dilemma as far as how to pay for college. They were either never able to save any money for the kids college education or lost their savings like we have. These parents are not even stopping to think twice about signing loans for as much as $30K just for the FIRST year for the kids…whatever it takes for their kids to go wherever their kids want. They are all of the same mind set. And I know for a fact many of these parents are also experience financial turmoil because of these economic times. I wonder how many people who are experiencing financial difficuties are actually going to be able to pull off getting these loans approved? It will be scary to see how these situations impact life 3-4-5-6 years down the road. </p>

<p>Graduation night, they will all be up on stage feeling proud when the headmaster announces the prestigious collges they are attending. But I wonder what will happen when just days later, they find out their parents coudln’t get that $30K loan approved. Probably be seeing lots of kids in the community colleges</p>