As a former lender, there is a lot wrong in your commentary. I’ll just leave it at that.
@lastone03, kids going to schools with a “no loan” aid policy are still able to get federal loans. It just means that they won’t show up in the aid package from the school. So, for example, if two schools determine that a student’s need is $20K, the no loan school’s package may show $20K in grants, and the other school’s package may show $15K in grants and $5K in loans. Or the no loan school may determine the student’s need is $15K (instead of $20K), it will show $15K in grants but the student can still get a federal loan for $5K. Hope that makes sense.
@coolguy40 said
Well, that just isn’t true. Even the IRS has to follow the procedure to get a lien on your house or other assets, and then execute on that loan. The IRS is a preferred lien holder, and gets some advantages over general creditors, but it doesn’t jump over the secured lien holders (mortgage lender, car lien holder). ANY creditor ‘can simply take you to court’ if you don’t pay, and then they get a judgment, then a lien, then execute on the lien. Taking your house is a lot of steps away, if it is even allowed under state law (not federal). Some states do not allow judgment liens to foreclose on a residence - they just sit in line like other unsecured creditors.
@overbearingmom, I personally think it is worth tightening the belt now rather than taking a Plus or private loan. If you find it too uncomfortable, you can always take the loans out later, in March or sophomore year. Maybe you’ll get a big bonus or your student will get a good job. The best order of loans is student Direct subsidized, then unsubsidized, and then a parent Plus or co-signed loan. Some parents might be able to get a better private loan than the rates/origination fee on the Plus loan, but the Plus loan does have some advantages of repayment plans, forgiveness on death of student or parent (the forgiven amount is taxable).
If the direct loans aren’t part of the FA package (and you filed the FAFSA), contact the FA office and they will add them to the FA package. They will probably be unsubsidized if they aren’t originally part of the package.
@suzy100 thanks for the clarification. I have always gone through the school to get the Federal Loans. After completing the FAFSA, how do you go about accessing the loan proceeds if the loan is not offered through the school? Just curious.
Oops…looks like @twoinanddone answered the question.
Speaking of NYU https://www.theatlantic.com/national/archive/2013/08/the-expensive-romance-of-nyu/278904/
The Parent PLUS loan interest rate will be 7.6 percent for the 2018-2019 academic year.
We’re not doing a PLUS loan, I’ve read too much about it and it scares the hell out of me. We’re using our 529 savings until it runs out (which will be sooner rather than later) and then most likely going with Sallie Mae or Discover- our son will take the loan in his name and we will co-sign.
@lastone03 @overbearingmom I cannot speak for all “no loans” colleges but at the two I am very familiar with–Harvard and Columbia–you can still get approved for loans to cover your EFC. And they will also approve you for loans if you calculate your costs higher than their official COA. Many students and families do take out loans when attending these colleges. They just aren’t part of your FA award.
I agree with all parents being credit savvy and conscious of the ramifications over overextending yourselves.
But the concept of the bank (which isn’t a machine , it’s a bunch of other human beings as well) being somehow evil is strange to me.
We make a contract for anything you would expect both parties to abide. And if they don’t usually some form of remedy is available.
If you lend one of your friends 10000 dollars and they dont pay you back as promised. How would you feel.
Now if it was someone you didn’t know what would they have to do or promise for you to loan them 10000 dollars. Would you want it writing. Would you want to be able to go to a judge if they blew off paying you back.
It’s not like the bank is chasing you down the road with a bag of money. Begging you to take it.
Well, the way the PLUS loan system works, it’s pretty close to that. First of all, it’s not the bank, but the government. Secondly, there is no screening related to ability to pay – just a fairly liberal credit check. It might be easier for a lower income parent to get approval for a PLUS loan than to qualify for a car loan. It is very possible for parent who earns $35K/year and has good credit to sign on to borrow $50K in PLUS loans.
And third, there is no legwork needed – the loan will be processed through the college financial aid office, and all the parent has to do is indicate that they want the loan - generally be ticking a box on a computer, entering an amount, and clicking submit. Even the signature on the promissory note is an e-signature – not at all the same as sitting in the bank with a loan officer going over the steps of the loan.
So the college pretty much is chasing the parent with the bag of money — quite often written into the financial aid award – and the kid may very well be doing the begging. Please, mom/dad, dream college, etc.
And with PLUS the parents can also opt to defer payments until the kid graduates, not really understanding that the loan is running interest during that time – so it can “feel” like free money – especially if the parent compounds their error in judgment by assuming that the kid will take over the payments after graduation. (Hard to do on the salary of new grad, who will learn that degree or not, the first post-college job is still entry level; and even harder if the family runs out of money along the way and the kid never graduates).
I do think – and have posted above – that the PLUS loan is a very useful way of financing an education for savvy borrowers who are using it to extend their buying power, with the intent of making payments right away. If a family has the ability to pay $20K annually for college, but need to pay $30K for the college the student is attending – then that PLUS loan in combination with upfront payments can give the parents the ability to fill in the gap – maybe they borrow $15K a year, pay $15K up front-- and then as soon as their kid graduates, they can accelerate paydown because the loan payments are only $700 a month… and without the college expense, the parents have $20K in discretionary income that can be used to pay extra to principle. So that’s the right way to use the money.
The problem is that it is too easy for less savvy borrowers to get the money, and the system has none of the safeguards built in that ordinary bank loans have.
If you are a banker, you would approve the parent who can afford $20K and is trying to finance a college that costs $30K a year. You would not approve a parent who has -0- for college and wants to finance $60K a year…-- you’d politely turn that parent down. But the current system can and does allow parents to borrow like that.
Well, I am a banker and the following is how I have presented college costs to my daughter:
Equivalent of $15k per year in college account, I can pay $12k per year and if she chooses to work (10 hrs per week during school year and 30 during summer) that would be another $10k. So total budget of $37k per year. Her list has two tougher schools (Occidental and Tulane) where merit is very unlikely plus aid will not be great as our FAFSA efc is $55kish. Many of the schools she is applying to will need scholarships to work but she has a decent chance, a few (SD st and Cal Poly) will be fine if she works and two schools should be under my budget (I will give her $ at graduation for the difference if she is under budget). I want her to have “skin in the game” while still helping out a lot.
By the way, my wife and I have decided we are not allowing her to take any student loans. We don’t feel it is necessary in our situation.
What is the difference?
Probably $16k given no merit aid (She could get some).
Thanks for all the info on PLUS loans.
I agree with everyone’s input about loans in general and the Plus loans. It’s not the lender’s fault. we are the ones signing the agreements.
We had to make similar decisions a couple of years ago. My S had to decide between a top 5 engineering college that costs $70k per year or the best public university in our state which would cost $20k per year (mostly room and board). Is the extra $50k per year worth being educated at one of the top colleges in the country?
The simple way to look at it is to do some quick math on compensation after college. To recover $200k for the extra college expenses over a 10 year period of time at a 4% rate is about $24k per year. Will he make $24k per year more in salary (after taxes!!) graduating from a top school in engineering?
I am not sure and truthfully do not think so.
He is a junior now at the expensive option - so ask me in 11 years. 
We are fortunate to be able to pay without taking loans. I did get loans the first year while some extra income was not coming in. But I was very scared of the loans. We are all paid up now, no loan balances and keeping up.
If I could not have afforded the more expensive option, I would have told my son the in-state option was his only option. We must be truthful with our kids when it comes to money. I know it is hard.
Looking at the actual cost of school, including the interest on loans, is very sobering. The price ($260,000 for four years at NYU) is staggering to look at. But if you factor in the 7% for a PLUS loan, that’s over $3,000/month for ten years and over $103,000 in interest. It’s really hard to imagine the NYU degree being worth that much money. My son is an excellent student and would get merit money at other schools but NYU doesn’t offer any and that’s where he wants to go.
But as said by other people here, I don’t blame the banks. They are making this dream possible for people and have a right to get paid for doing so.
But again, it really doesn’t make sense for anyone to use PLUS loans to finance the full cost of attendance. The responsible borrowers are using it to fill in the gap between what can be paid from current income and college savings and total cost. So if a parent can afford $30k a year but the college costs $45k a year, then the parent pays what they can afford and borrows the balance. After 4 years that parent has $60k in loan…not $180k.
It’s unfortunate that the system allows less sophisticated borrowers to take on more than they can handle.
So for a kid like your son who wants to go to NYU the question is what’s the gap you need to cover, not total COA. NYU does offer merit money with a need component; in fact all of their aid is essentially merit based, up to full tuition, though it does not come close to meeting need for most students. So no, you don’t have to send your son to NYU if it is beyond your ability to pay…but you can include a certain level of borrowing in determining your budget.
The best way to pay for college should be to pay from savings and cash flow first, followed by direct student loans and finally parent plus loans (in that order).
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I was buying a car and talking with the finance manager and we got on the subject of student loans. He took out $300,000 for 2 kids in Medical school!!! I almost fell off my chair!!!