To me, it’s all about the income/expense, balance sheet and cash flow projections. And this sort of financial analysis should begin roughly around child birth. :))
What are the direct costs of the school? Tuition, fees, room, board? Did she get any scholarships or grants?
How far is the school, driving distance, flights?
You could contribute how much? Then she can borrow $5,500 student loan, she can earn maybe $3,000 in the summer.
How much would be left?
Sushi, there is risk management involved, actuarial analyses, etc. Parents in their 60’s have less risk tolerance than parents in their 40’s. It’s not always about cash flow. Is this a dual career couple (the parents) or one breadwinner? Is the D good in math, and does she understand the difference between gross income and net income? A lot of HS kids read that a financial analyst at a bank can make 45K in their first year and think, “Wow, what am I going to do with all that cash?” not realizing that by the time FICA, health insurance, and the other deductions kick in, they aren’t taking home 45K. This is not the first thread where you have grossly oversimplified someone else’s debt issue.
To answer your question MamacatTX, we were able to find better terms than the PLUS loans through a student assistance fund in our state that offers private loans. The loan disbursement fees were less and the fixed rate was less and they offered a wider variety of repayment terms. As sushiritto noted, if you go into it with eyes wide open and you and your child understand the diligence needed to repay the debt, do what you and your child feel is right for your situation. It is a personal decision.
@blossom Duh! I stand by what I said. Income/expense, balance sheet and cash flow projections. I understand finance(s), risk management and I understand “actuarial” realities. Wow. Holy cow!
As I said on the thread started by a twin female student from HI, I’d have to see the entire financial picture of the family, but if everything is sound financially and health-wise, proper financial planning has been done, yes, including life and disability insurance, savings, etc. then I wouldn’t have a problem with an $80,000 loan. Just on the face of it, $80,000 over 25 years or some other long time period doesn’t scare me.
Please let me express my opinion without being attacked for a lack of knowledge or experience or expertise. My family and I are doing fine and kid(s) will be going to college.
This is a terrible, terrible idea.
@IronMaiden You expressed your opinion without sounding sanctimonious. Thank you. :)>-
- Plus loans are repayable in most cases over 10 years. Parents can qualify for different repayment terms but they are based on the PARENT's income, not on the student's. The repayment isn't combined with the student's, so the student might be paying $500/mo on her loans and $1200 on the parent's loan (if that is their agreement). The government will not combine the loans or the payments.
- There are different loan repayments for parents, but not usually set up as payments increasing toward maturity.
- No you don't receive it all at once. Like student loans, the amount is disbursed by term (semester, quarter, summer) as you can only borrow up to COA less any other student aid received.
OP, the Plus loans are yours, the parent’s. The government will not combine them with your child’s, will not transfer them, will base repayment on your income (not hers). You can have an agreement with your daughter to repay these loans, but if she doesn’t pay your only recourse is to sue her on an unsecured loan. The government will not try to collect from her, only you.
You need to compare any benefits from private vs government loans. Govt loans have a 5% origination fee. Govt loans can have different repayment plans, are eligible for deferment, are forgiven upon death of the parent or student. Private loans might have better interest rates, might allow consolidation of student and parent loans, sometimes release the parent after several years of on time repayments.
@twoinanddone Thank you.
I didn’t see where this reference came from (was it from a link?). The penalty on default is that the loan goes into default and the creditor sues and collects under the terms of the loan, which might have judgment interest higher than the contract interest, but that depends on the state (it may be 18-24%, but that’s not usurious it is set by law). Lesson? Don’t default.
The “50% principal penalty” appears to have been edited/deleted by a poster from the 1st page.
Totally understand about the default rate of interest, but I’ve not heard of a “50% principal penalty.” That’s loan sharking. :))
I don’t see it, but assume that the reference is to the result of defaulting, that you will pay about 50% more for a default than you would have if you just paid the loan as contracted. It has to be an estimate as defaulting on a $10k loan will not cost the same as defaulting on a $50k loan.
All student loans I’ve seen are simple interest, no prepayment penalty, but of course all loans have consequences for non-payment, late payments, and defaults.
OP asked which loans, private or Plus, were better. I think they have different costs and benefits. If the most important goal is to have the daughter first in line for repayment, then only the private loans do that.
@MamacatTX You mention that your son has also taken out $80k in loans ($20k per year). Are those Parent Plus loans in your name (and I would assume if they are you established the same ground rules with your son that he is paying you back) or are they private loans with you as a co-signer? Is your son successfully maintaining payment on those loans?
- Student loans are exempt from predatory lending laws
- The 50% came from the private loan option: Sallie Mae will charge 25% as a loan collection fee. The collection firm will take 28% commission off of whatever cash they collect before the balance is applied to your 25% inflated loan.
- I think for PLUS the numbers might be 16% and 25%, but my Google skills are lacking to find a page for the current year.
Nope – see post #15, this thread. Not edited (or deleted).
Sallie Mae is collecting government loans (Direct loans, Plus) not usually private loans.
My roommate is about 80k in debt. Or was, when he graduated 4 years ago. He really hasn’t made a big dent in it since then.
He is now living in my spare bedroom (so in a house with a married couple), essentially rent-free, working two jobs and is still barely making ends meet. He just happens to have a best friend (me) who loves him and can absorb the little extra that he costs to house. Not everyone is that position.
No, no, no, NO this is a terrible idea. Even IF you manage to get loans every year and she manages to graduate, you have NO idea what type of job she’ll have, what major she’ll end up with, etc.
Plus, you could be denied at any time and then she’s left with tens of thousands of dollars in debt and no degree.
No, no, no, no.
@sushiritto >>>>>>>but if everything is sound financially<<<<<<<<
Really, if everything is sound financially, we wouldn’t be here having this discussion. OPs kid sounds like a great student. She will be successful anywhere. But the point of the OP is that they would be borrowing this money for instate school anyway. A kid with a 34 ACT/IBD+APs, 12% rank 3.8 GPA does not get some kind of significant scholarships at A&M? UTD? UT is shut out due to rank or major?
The 20K deficit might only be 8K-10k/yr tuition. which in itself is a bargain.The only real deals are the auto tuition type schools which might not be palatable.
@Sybylla Internet forum discussions are limited in the amiunt of info given by the OP. Yes, if everything is sound finally. I’d need to see the bigger financial picture to make any determinations. However, the OP hasn’t mentioned anything about the dire straits that brother is in with his student loans. No mention of any bankruptcies or other problems.
The OP is requesting info about loan differences between private and government loans and not a lecture, yet anytime anyone mentions student loan debt, the alarm bells sound around here. Maybe the OP wants her children to tackle their college debt on their own and have $1,000,000 in the bank and stock portfolio and their home has no debt. I just don’t know.
Under the right family and financial circumstances, there’s nothing wrong with debt at historically low rates.