He goes overboard about avoiding all debt when it is in fact a useful tool when used properly.
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billb - I think you are correct. But those that he helps typically have a poor track record when it comes to debt and do not borrow correctly. I think he is overboard with student loans, too. Hopefully, though, his strident stance makes some reconsider taking out these loans or pursuing options with less debt. Put this in context. Student loans are not dischargeable in bankruptcy, often accrue interest daily, and impose an order of obligation which requires penalties and interest get paid first. They are just terrible instruments, even if one can service the loans timely. The student loan debt horror stories are troubling. Forgiveness is problematic. The high amount debtors are often physicians and lawyers, hardly a sympathetic class. And forgiveness means that the 60 plus percent of people without college degrees must subsidize degree holders. Any long term solutions involve academia really putting skin in the game. They are a politically favored class with monolithic voting habits and reform looks bleak.
I have a helocā¦tuition gap is 6k a semesterI revolve the $out of the heloc and pay 1k a month back rinse and repeat
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I donāt know of any loans that donāt do this. Student loans (at least the federal ones) are simple interest and only compound when the loan is initially put into repayment status, or when the loans are combined or rewritten. Interest does accrue daily, and charges, penalties, and then interest are taken from the payment first, then principle is reduced.
All loans are that way - except precomputed loans and those donāt do any favors for the borrower (they are pretty rare these days).
I donāt want to get this thread off track, but I want to take a moment to caution against overromanticizing the so-called āgreatest generation.ā There are some things which society provided back then which we donāt any more. Since weāre talking about colleges, Iāll note that California, New York, and Florida all had at least some free college options. New York also had a state scholarship program which was sufficient to pay 1/2 my tuition, room, and board at a private college in the 1960s. The program was easy to qualify for. The further back you go, the more common that free college was, being gradually phased out as we moved forward in the 20th century.
Many Americans had college paid for by the GI bill as well. Unless you were black, many Americans also bought their first home with financing and pre-qualification from the GI bill. Americans who suffered through the Depression and WW II were also the first generation to retire with social security benefits.
Iām not saying that everything was handed to them on a silver platter, but It is myth to say that generation had to pull themselves up by their own bootstraps and things are handed to people today. In many ways, the social safety net has eroded since the 1950s and it is harder for many people today than it was then.
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when the lowest cost of college one can find (currently 22k, times 2) is 33% of oneās gross income per year, that 8% limit guideline proposed is unworkable
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That was his view right after he declared bankruptcy to get his fresh start.
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At its core, the decision to take out loans (whether for oneself or oneās kids) often comes down to whether one views the college experience purely in economic terms. If your only inputs are cash outlays vs. potential income streams, you are probably more inclined to recommend avenues such as āgo to a community college with no debt then go to Va Tech to finish cheaply.ā
However, the value of higher education is not realized solely via job training and improved employment prospects. For me, thatās just one component of many, and those other components make me OK with borrowing to fund my childrenās education, if needed. Not everything in life is monetizable. I didnāt shop around for the cheapest oncologist, either.
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The challenge is at some point we have to put some monetary value on those qualitative variables. Itās the process weāre going through now. Weāre in Virginia, and my S23 wants to study engineering, Virginia Tech would be his first choice, but itās a reach for him (heās pretty much the average of their engineering admits, but heās coming from a more competitive area, and heās a bit below average compared to others applying from his school)ā¦ so the Northern Virginia Community College to Virginia Tech route is pretty tempting.
He has to weigh that against VCU, Mason or Bama (or ASU if the merit package is ok), assuming he doesnāt get into any of his targets or reaches.
So at some point he needs to make a decision that 4 years at X institute is worth $40K more than NVCC and then Virginia Tech. And thatās at the low end ā some of his other targets will be like $80-90K more over 4 years compared to community college and then transfer.
And you donāt have the luxury of knowing what the actual experience is going to be. There are active communities at NVCC, a sports team, internships and so onā¦ so he could make friends, go to games, parties and so on. There are also some very smart kids there who have tight money situationsā¦ so thereās the possibility of falling into a super smart friend group.
So basically you have to play probabilitiesā¦ the probability that you will achieve a certain amount of independence earlier, have a much better fun experience and so on, is probably greater at a traditional 4 year, but it isnāt absoluteā¦
Itās a crazy hard decision. If it were me in his place, and I didnāt get into Virginia Tech, Iād probably choose the scholarship money at Bama, which makes it pretty close in cost to community college to Techā¦ and Iād weigh the experience of leaving home and experiencing a different part of the country worth the costā¦ but itās not an easy decision I think.
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Parent PLUS loans are predatory. Just say no.
When our oldest was a sophomore and school counselors started talking about colleges, we sat him down with our savings, showed him our savings rate for his college education, and explained what this total would mean in terms of what colleges it would cover. We explained that college is more than just the tuition- there are fees, living expenses, activity expenses, etc. which must be factored in, and often those expenses can come close to the cost of tuition. We also explained to him how fortunate he is to have parents who were able to save this much, even if it means he doesnāt have enough to attend any college in the country without scholarships. We are encouraging him to apply for scholarships but not pressuring him too much. We showed him the net price calculator and explained what this meant in terms of what would be available to him from the FAFSA.
In his junior year, there was some anger and frustration as he realized that this meant he couldnāt go just anywhere, so we took him on tours of schools that we knew we could afford before applying. Once he saw these places and could picture himself a student there, he felt better.
I donāt feel guilty about being unable to afford the most expensive college in the country, and I didnāt even explain parent PLUS loans to our kid, because they are not an option in our family. We didnāt create the college debt crisis or even have any influence over it, but we are not participating in it. āNot this, but thatā will help your child accept reality and even get excited about it.
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We are thinking of taking direct plus loans for our S. If i sign up for a Promissory Note, does my wife need to sign up for a separate PMN? My son had sign up for his part unsubsidized direct loan. Please adviseā¦ thanks 
No, only the parent who actually applied for the loan has to sign the promissory note. So if you do the application for the Plus loan, youāll sign the MPN.
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The concerns youāve raised about Parent PLUS loans are indeed valid and important to consider. These loans have become a significant source of financing for higher education, especially at institutions like conservatory schools. The high-interest rate of 7.9% can create a heavy financial burden for parents and students alike, especially when compared to the lower interest rates associated with home equity loans. Additionally, the fact that Parent PLUS loan obligations cannot be discharged in bankruptcy and that they can lead to garnishment of social security benefits is a cause for concern.
The absence of income checks when qualifying for Parent PLUS loans can lead to a situation where families, including those with lower incomes, are encouraged to borrow large sums of money. This could potentially lead to financial strain and unsustainable debt for families. Furthermore, itās important to consider the broader economic implications, as a large number of people with excessive student loan debt can have negative consequences for the economy as a whole.
Itās crucial for families and students to carefully weigh the pros and cons of Parent PLUS loans and explore alternative financing options when pursuing higher education. Financial literacy and counseling can play a vital role in helping individuals make informed decisions about how to fund their education without risking their financial well-being in the long run. Additionally, advocacy for more comprehensive reform in the student loan system and improved transparency in loan terms and conditions is essential to address these concerns at a systemic level.
This reads like an AI/ChatGPT response. Especially consider it states ālower interest rates associated with home equity loansā. The last solicitation from my bank I got for a HELOC was 8.5%.
No idea what PP Loans are at now thoughā¦
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Rate is reset annually by US Treasury. Current rate is 8.05%
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It is important that ālower interest rates associated with home equity loansā are mentioned since it highlights how affordable Home Equity Line of Credit (HELOC) loans may be for homeowners. Your rate of 8.5% is reasonable; however, keep in mind that HELOC rates can change depending on the state of the market. Regarding āPP Loans,ā itās unclear what you mean because interest rates depend on the particular loan program. To make a wise financial judgment while contemplating borrowing possibilities, keep up with current rates and market conditions.
Correct - interest rates are going to vary based on any loan program and bank and timing (PP Loans reset as well). At the time of the OP, it was stated that HELOC loans have a much lower interest rate. Something you quoted and re-stated. 3 years ago that might have been true. Itās not true today. HELOCās also assume that a homeowner has sufficient equity in their home to support the necessary funding.
One assumes that informed consumers will, if they need to incur debt, search out the cheapest form of that debt.