Private loans have different terms and different benefits. They might be better than a govt loan (lower rate) but may require a co-signer, not qualify for deferrals, for income based repayment, for forgiveness in various programs (public service forgiveness).
The current forgiveness programs being teased by certain senators will not apply to private loans.
Is Govt Loan avail to everyone? But just has slightly higher rates?
govt loans are available to anyone who can fill out a FAFSA (citizen, green card holder, some others) but are limited. the student can take out $5500 first year, then $6500, then $7500/$7500. Some students can take out more if their parents arenât eligible for PLUS loans.
Private loans arenât necessarily lower interest rates, but they might be (govt rates change every year on July 1, and right now are pretty loan AND interest is currently not accruing until Sept 30). Just make sure you look at the terms and get what makes sense to YOU.
I started at a community college and graduated from my local university. Iâm not hurting in my career at all, and my student debt load is average. Even that has pinched at times during the pandemic. I could certainly make more if I wanted to. Iâve even interviewed for jobs at Google, Amazon, USAA, Valero, and Universal Studios Orlando to name a few. I decided to take a job with the state of Texas because of the stability. It turned out to be a very wise choice.
Why am I rambling on about this? Itâs because if I were locked down in large amounts of debt from co-signed loans, I would have no other choice but to take a higher paying job regardless of whether itâs a good fit. This last year made it a lousy time to build a life around a new job. Everywhere we considered moving seemingly ended-up burning to the ground. The resurgence of COVID caused more mass layoffs, even if I was working at home. This job has weathered all of it.
The point is, donât take on more debt than you have to, because calamity seems to have become the new normal. No one saw COVID coming a year and a half ago. Who the heck planned for a blizzard in south Texas? What next? Aliens?
From the NYTimes:
Federal PLUS College Loans Can Trap Parents in Debt - The New York Times (nytimes.com)
According to the article, âParent PLUS loans now account for nearly a quarter of new federal borrowing for undergraduatesâ, and at NYU âas many as one-fifth of students had a parent who took a parent PLUS loanâ.
I just saw this headline flash in my newsfeed. For those without NYT access, this looks like the article linked in the post above.
https://news.yahoo.com/federal-college-loan-program-trap-121042742.html
Parents who felt their kids deserved more than they could afford and now donât want to pay for it. After the parents borrowed more than $125k for each undergrad, the kids then went to grad school.
I have no sympathy for these borrowers. They knew they couldnât afford NYU, they knew they couldnât make the monthly payments before they borrowed more and more. Now they are looking for relief from the high interest rate of 8% (really, what was the interest rate on the credit cards you didnât pay?). My student loan rate in the good old days was 9%.
The article didnât say how much they have repaid, just that they keep doing deferrals.
I agree itâs crazy to go to NYU if you donât have the money, but on our instate flagship parent Facebook page, parents of incoming freshmen are asking how to get loans, right out of the gate. Tuition with r/b is $30,000+, very little merit is given, especially to in state, and these are folks not eligible for FA.
We chose the schools for my kids very carefully because I made it clear I wasnât taking out a Plus loan. Like the parents in the story I didnât want my kids to take loans and they didnât the first year, but then it became clear they needed to. We also tried to keep those loans as low as possible. This family is from NY and there are plenty of good schools that cost less than NYU.
One of my kids really wanted to go to school in California. I gave her the numbers, told her to find a school that would come in on budget and she couldnât do it so went somewhere else.
I didnât have $30k per year for each kid. Mine would have gone elsewhere. There are schools out there that cost less than $30k/yr but you may have to give up the perfect location, the unlimited meal plan, the private room.
Where? My daughter who stayed in state at Rutgers lived on campus in a cinderblock ancient dorm room with no a/c, bathroom down the hall. Her brotherâs public NJ college was $35,000, same conditions. Thatâs how much college costs here. We are paying over $35,000 a year for my daughterâs OOS public, and that after $17,000 a year in merit. These parents make too much for FA and yet live paycheck to paycheck (easy to do in NJ since the COL is so high). I know so many parents who are shocked with their financial package. Many also donât understand compound interest.
My daughter went to Wyoming as an OOS student. Full price would have been $25k, but no one pays full price. I think her most expensive semesters were about $8-9k, all in. Housing is cheap, meal plans are cheap, there are a lot of scholarships (mostly merit) for OOS. Instate pay very little. Same type of deals are available in many midwestern and western states - South Dakota, New Mexico, Idaho, Montana. Donât want things so cold? Try Oklahoma, the south, Arizona. Not free, but cheaper.
In Colorado, going to CU is very expensive, even for instate students. Living in Boulder is very expensive. Great if you can afford it, but if you canât, there are dozens of other state schools that are lower to start with but have a lot more financial aid available. Mesa state, Colorado Springs, Pueblo. Want to live in Denver? Metro state is a commuter school and you really can make it work for about $10k in tuition per year, plus there is a lot of financial aid available.
Of course everyone wants to go to Boulder - itâs the best! I couldnât afford to send my kids there, even with instate tuition.
For NJ kids, Iâm sure there are other state schools in NJ that arenât $30k, but they can also look at other states, private schools with merit. They arenât NYU, they arenât Penn State but they are âcollegeâ and if thatâs what the family can afford, thatâs where the student should go.
Interest on student loans doesnât compound unless you ask for a deferment. If the parents in the article had just started paying and upped their payments every time they took out another semester of loans, their interest wouldnât have compounded. I was unimpressed by the comment that theyâd had emergencies like car repairs and dental work. Who doesnât?
I believe Plus loans should be limited, just like direct loans are. Donât give parents $120k in loans, and then they wouldnât think thatâs normal. Their kids would pick different schools to begin with. Make them start making payments immediately so theyâd know that their payments would be doubled for sophomore year, quadrupled for senior year. I think that would get them to say âwhoa, this is too much. Sorry honey, you need to give up that dream of NYU and say âHello SUNY!ââ
How many times on CC have we said to 18 year olds âSorry, that dream school is just unaffordable. Yes, you were accepted and itâs June, but it is just too expensive.â The Plus loan program needs to say that to parents too.
I just finished listening to Dave Ramsey. Now, I donât necessarily agree with everything he says, and in my own life, have been sensible or luck with money, including paying for Princeton and Michigan with no debt anywhere and looking a healthy portfolio right now. But he says no Parent Plus loans under any circumstance, and unless there are only minor amounts at issue to complete a degree or something of that ilk, I agree with him. I struggle with saying this because I didnât say no to my kids and didnât need to. And I didnât take out loans either. My complaints about a fully funded 529 plan not going very far at Princeton look silly in context. But in my state you can go to a community college with no debt and go to UVA or Va Tech or JMU or W and M to finish cheaply. Yes this means no Greek experience and likely working during school, but being debt free today is invaluable. Even if a young person works a demanding entry level job without much enjoyment, they are more likely able to tough it out knowing if they have to they can take a less demanding or lower paying job.
I totally disagree with âno Parent Plus loans under any circumstances.â (TBH-- I think Dave Ramsey is a fraud and huckster).I think they can be useful for folks with stable employment situations who simply want to re-arrange the cash flows of college payments into a schedule that works better for them. I have no regrets about the ~40K of loans we took out to pay for our kids college
Ramsey may be a huckster - but I donât think he is a fraud. I donât think conflating of an opinion of low value with fraud is either accurate or helpful.
I donât agree with all of his methods but in general his aversion to debt is a good thing. He has helped many avoid a life of desperation in getting out of debt. About the only thing I adopted from him is the 15 year mortgage - paid it off 5 years early and irrespective of the math, there is a sense of peace in doing so. He overstates typical investment returns, which annoys me, but again he is encouraging people to invest in an economy where capital gets treated far better than labor (sadly, but reality is what it is). In this context, being careful about going backward with debt is no trivial matter.
I do agree with you there is not a one size fits all approach to finances, but irrespective of the source (Ramsey), 2008 should inform that debt issued with scarce underwriting standards has real risk, and the fact that they are not dischargesble in bankruptcy makes parent plus loans uniquely bad. And the things accrue interest like crazy, and in a default, penalties get paid first, then lots of accrued interest - it can make for a lifetime of misery where paying down the principal is illusory. Only big government could come up with an order of obligation completely insensitive to citizens.
Again, I donât the way forward is an ad hominem attack but a thoughtful way to approach risk. Even if Ramsey is completely wrong there is value to asking the question. There has to be some kind of income to debt to value of the education formula which places a ceiling on this kind of endeavor. We have people with their social security being garnished. No way to put a good spin on that.
Iâm comfortable with the language that I used to describe Ramsey and his approach.
I also donât like an ROI approach to figuring out maximum loan levels-- because I think there are benefits to an undergraduate education that canât be monetized.
That being said, I think imposing limits such as those that exist for federal loans (i.e. no more than the cost of attendance or so lower cap) is probably an appropriate step.
Iâm a contrarian I guess. I took out debt as an undergrad which took me 20 years the pay off. I took out 150K for graduate school. Both undergrad and grad were at Ivy League schools. I didnât work much as an undergrad cause I was focused on school (except summer internships).
It all worked out for me and I was able to pay off the 150k with one of my bonuses.
To be clear - I wasnât suggesting a ROI approach. There are too many variables to make that work.
A financial expert (not Ramsey) suggests only assuming loans that do not exceed 8 percent of oneâs gross income That seems sensible.
Reform in this area is very difficult because if the Govt forgives loans on a general basis the loan programs would have to be drastically limited going forward. If the loans are truly toxic - and for many they are - the program canât continue in its current state. This would completely alienate the academic industrial complex, which has raised tuition and fees three and half times inflation. And since that complex votes 95 percent in one direction, well, one can see why there has been little movement on overall forgiveness.
Ramsey completely overlooks opportunity cost. He would have me pay off my 2.5 percent mortgage before funding my retirement or anything else.
No defender of Ramsey, but carrying an affordable mortgage is a debt which he accepts while contributing to retirement. One thing I donât like is that he often suggests foregoing things like 401k contributions which in some cases with crushing debt may make sense but eschewing a healthy employer match is often not a good idea. My match over 25 years is just tremendous and gladly is not performance based. I donât listen to any of these guys literally but Ramsayâs focus on limiting debt and spending is a helpful voice. I also donât agree with his rigid stance on student loan debt - it is a defective program - but do agree with his view that if we forgive you canât keep the programs intact and must change them significantly so they donât do the same harm over and over again. This absolutely terrifies the academic complex which exploits the lower and middle classes (an important voting block) so I am not surprised there has been no generalized forgiveness. I say this not to be political but the average student and parent needs to know what they are up against. Student loans are a significantly asset on the federal balance sheet. I donât quite share Ramsayâs views on bankruptcy either, as it is helpful in shedding unsecured or non student loan debt, but again his view that bankruptcy is one tool that does not solve all problems is valid. Listen to everyone critically.