My DD has chosen to attend an out of state private university. The university has given her a great package but there is still a $20K yr deficit. From the Get-Go we told her we could not pay this bill but were willing to co-sign for her.
As I have done some digging around, I am seeing the interest rates on the Plus loans appear to be better than the private with co-signor and I am now contemplating taking out a Plus loan with a back up agreement from DD that she will make the payments. I understand all the risks for these scenarios and this is not the reason for my posts.
Are Plus loans a better option over the long haul (Fee’s, interest etc) or is there not enough difference and we should proceed with the private/co-signor route?
How is a 22 year old going to make the payments on 80K worth of debt?
Agree with #1. That much debt will be a significant burden on a new college graduate. You should expect the debt to be yours in either case.
With an education and a job.
DD has this mindset that student loans are a fact of life, no matter what we (or anyone else) has said, she is not concerned and is determined to move forward.
I understand the whole “if you can’t pay for it you can’t afford it” but every single student I know heading off to college is looking at $100K easily in student debt upon graduation that their parents have no intention of paying. Even the “best” packages and parent help are still leaving $20K or more per per year that someone will have to cover - heck, housing at most universities is $10-15K all by itself before we even get to tuition.
We have offered to DD what we gave her brother but that is not going to cover the whole costs and loans are her only option. So, whether its a private loan or a parent loan is where we are at.
I’m pro loan. I borrowed, my spouse borrowed, I know dozens of people who are successful professionals who quite simply could not have gotten an education without loans.
But a new grad with a new job owing 25-30K is one thing. Get a roommate, use zipcar once a month instead of owning and insuring a car, no eating out unless your boss is treating the team. Gotcha. That’s a plan.
80K??? How in heck do you economize your way to making THOSE kinds of payments?
What does your D hope to do professionally? And what happens if she gets mono freshman year and needs an extra semester to graduate? Or if she changes her mind about her major and needs to go an extra summer to make up the credits- more loans?
Have you sat down with a loan repayment calculator and show her the years of repayment? is this 80 K on top of stafford’s (I kind of assumed it would HAVE to be,and that means over 100K?)? What is her career plan? I get that YOU understand the implications, but does she? She has no Texas options? UT rejected her?
As above, these are your loans. Whatever the verbal agreement with an 18 yr old. There is NO backup agreement from her.
My Son attended a state school, had a state sponsored scholarship and help from us but he still had to borrow close to $20K a year to cover the costs. IMO $25-30K for 4 years in this day and age is just not all that feasible when even the cheapest state option is in the mid 20’s (COA)
My DD’s outcome of $80K is low compared to what we are seeing in her high school group.
Frankly I find it insane BUT I also find it to be the norm not the exception
Yes, we have done all that - UT pretty much only took the 7% auto admits this year however, UT Austin COA for 2017 is $26,600, that is Instate
The school she is planning to attend is at or close to the instate options
Education is expensive, but $80K in loans is too much. It sound like no matter what you read here, you’re still going to tell us how you should take out those loans. There are cheaper ways to get a good education. The usual way is to start at community college and live at home for 2 years. In most places that costs very little.
In Texas community colleges locally cost about $4K total tuiton. Livign at home, that would save you about $32K-$40K in loans over 2 years.
http://www.collegeforalltexans.com/apps/collegecosts.cfm
Your child could then transfer to UT Austin for the final 2 and come out with an excellent education, for $40K loans, much more reasonable amount. If you add in the earnings of the student during summers, that cost could be cut by an additional $10K-$15K, bringing it to a reasonable amount of about $25K-$30K total over 4 years.
There’s no need to spend $80K in loans.
Unless your daughter is in a field that pays very well, like CS or engineering that amount of debt will be crippling.
What is the term of the Plus loan? Is it a graduated loan repayment (payment increases the closer to maturity)? Do you receive all $80K on Day 1 or can the $20,000 deficit be borrowed as your child progresses thru college?
“loans are her only option” - Not true - CC or a less expensive college are also options. I would not co-sign for something I think my child would not be able to pay back. Even if you have a side agreement with her, the parent plus loan is yours and you are responsible.
When you break it down you are borrowing maybe 40 000 for room and board for, at a UT school could she live at home? You can't pay her room and board portion at all? Do you all sit down and talk about how a meal plan is like 10 a meal and that is borrowed money? I get debt for tuition but this is the hard part.
It is very tough to maintain an appropriate and loving parental relationship with a new adult if they owe you THAT much money right out of the gate. Your D gets a great job offer in a city where she’s got tons of friends moving to, but also an offer she’s not as excited about, in a cheaper place to live, for slightly more money.
are you going to insist that she takes the better paying job as insurance that she’ll be able to continue to make the payments on your loan? Are you going to monitor her shopping to make sure she’s not wearing J Crew when she could be buying work clothes at Target?
You guys are starting things off in a perilous manner, IMHO.
I’m just starting to explore the terms of the various options thus the question.
It would be approx $20K for year one.
You are on the hook either way. If she’s unable to pay, it will ultimately be garnished from your social security, tax refunds, and any other government checks. If you really want those loans:
- Take out life and disability insurance policies on your daughter that would cover the entire cost off repaying the loans if she is unable to work
- Have an emergency fund that can make at least 6 months of payments if she is in danger of defaulting. Remember that the default penalty (read your loan terms carefully, can be over 50% of principal!) for defaulting will be on you, so do everything you can to avoid default.
A site for understanding student loans is
http://privatestudentloans.guru/
There are some loans where parent can be taken off the loan once student graduates, makes a certain number of monthly payments on time, and passes a credit check.
A good “scared straight” website to get you rethinking community college for a couple years is
http://www.collegescholarships.org/research/student-loans/
Also, what are her stats? There may be some schools that offer decent merit aid. Muhlenberg, Agnes Scott, Mt. Holyoke, Smith, Bryn Mawr – she could potentially take a year off and reapply–or she could apply as a transfer student out of community college to these fine schools. They profess to meet 100% of need and from Texas she’d offer geographic diversity.
I would seriously look into Grinnell, too. Or just google schools that meet 100% of need.
Beloit is much cheaper than most schools.
Earlham
Sewanee also starts at a lower price, but after FA calculations it may cost you the same. Hard to tell without the NPC.
Also, Union College in NY she’d be gender diversity at a fine liberal arts college that may lure her with a good package. St. John’s of MD/New Mexico also needs girls.
Here are some ideas for gap year that are either cheap or pay you
The average student loan debt is much less than $100,000. It is $27,324 for Texas. Highest state is New Hampshire at $36,101; lowest state is Utah at $18,873.
http://ticas.org/posd/map-state-data
The penalty of default is 50% of the principal? So, a $40K penalty in this scenario? I’m not sure that’s even legal, at least here in CA. That has to be considered usurious and if litigated, would be thrown out by a court. If true, that’s insane. And look somewhere else.
If you and your daughter go into the $80K loan with eyes wide open, with all the caveats such as no new cars or extravagant items, adherence to monthly budgeting, complete diligence to the payment schedule, and knowing you may ultimately have to take over the loan if trouble arises, then I wouldn’t have a problem as long you and your daughter feel it’s worth it.
It all depends on what the family’s entire financial outlook (savings, life insurance, other debt, income resources, etc.). IMO, it better be one heck of an college/institution. 
We don’t know the total price tag or the family income or EFC. The deficit is based on giving this student the same amount of money her brother got. It sounds like they didn’t really build a list with that budget in mind, though. I don’t think there’s enough info to suggest other schools that would come in better.
OP: depending on how many years ago brother went to college, you may want to consider increasing the second child’s budget to account for tuition inflation in the intervening years, assuming you could afford to do so. And take a good look at your community college system and any lower cost state schools which may still be accepting applications.
This is a ton of debt for a young person.