Read this before you take out a Parent PLUS loan

<p>Please be cautious. $10-20,000/year means $40-80,000 PLUS interest IF your kid finishes in 4 years, not counting costs for other kids. This is ALOT of money, especially if your income is volatile in this economy. Please think seriously about more affordable options, including some years at CC, commuting to local a Instate U, etc. </p>

<p>Considering your poor credit and underwater position, you may not be able to obtain the loans you need for all 4 years, which is something to seriously consider in your student’s college selection. </p>

<p>Subsidized means interest will be paid for borrower until the student is no longer attending full time or attains degree, whichever is sooner. Other loans start charging interest as soon as they’re taken out, which adds to the sum owed. </p>

<p>@lynjobes: The Federal Direct unsubsidized loan is the loan that would be in your child’s name. Because it is “unsubsidized”, interest would run on it immediately – if he could not make at least interest-only payments from the beginning, he would have 4 years of extra interest tacked on to the loan by the time he graduates.</p>

<p>The PLUS loan is a parent loan that you and your husband would have to take out.</p>

<p>That is NOT a financial aid offer – that school is simply telling you that it is not offering any aid itself, and telling you about the availability of federal loans that you can take to finance your child’s education. Or, to put it another way, they are saying: “here is what we charge, and here is where you can go to borrow up to the full amount if you choose.” </p>

<p>Please consider another option for your child – you simply cannot afford to take any loans in the situation you described. </p>

<p>I did take PLUS loans for my children, but although I am self-employed, my business has a strong enough foundation that I can be certain of earning at least a minimum each year. (Or as certain as I would be with regular employment). In any case, when my first child went to college I looked at my other assets (amount of money in retirement accounts, etc.), and made sure that whatever I borrowed was under that amount. I also decided on the maximum amount I could borrow for both my children, even though one was 5 years younger than the other – in my case I decided on a $40,000 total cap on borrowing – that was to cover all the years of education)</p>

<p>What are better options to fill the gap than the parent plus loan? Private student loans through a local community bank or credit union?</p>

<p>If you have enough equity in your house, I think home equity loans are the better option. Interest rates are lower and mortgage interest is deductible. Alternatively, one can do a cash out refinance since first mortgages typically have lower rates than second mortgages/HELOCs. The latter scenario also lets you spread payments over a longer period (of course that means more interest in the long run). You can prepay the loan, however, to reduce the interest expense. </p>

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<p>If you work at a non-profit, in a school, or with a government agency student loans and Parent Plus loans can be adjusted to payments based on income of the borrower. If that person continues in their job for ten years, the balance of principal and interest is forgiven. (the key is you must work a minimum of 30 hours per week for ten years).</p>

<p>I know of some parents who used retirement savings (there is no early withdrawal penalty) but that seems drastic, temporarily raises your income for tax purposes, and depletes your safety net.</p>

<p>Home Equity “may” be the cheapest option depending on the financing. But that probably doesn’t help families in areas still recovering from the economy or where housing prices fell. The loan officers are now more stringent about credit, existing debt, etc. But it’s a good option if available.</p>

<p>A Parent Plus loan is a reasonable option if you can manage the payments. And the payments don’t start until after the second semester funds are released to the colleges.</p>

<p>(private loans often come with more strings, less flexibility and can not be forgiven even if the family’s financial situation changes).</p>

<p>No one can take away your house if you fall behind on payments for your Plus loan. Also – if you are falling behind on payments for good reason (you lose your job, you become disabled) – the Plus loan offers ways to adjust or defer payments, home equity doesn’t. Home Equity loans sometimes have a pre-payment penalty, Plus loans don’t. </p>

<p>I think home equity is a good option for some, but you need to look beyond interest rates. </p>

<p>I opted for Plus loans and I had all Plus loans paid off within 2 years after my daughter graduated from college. I just increased the amount I was paying each month once I no longer was paying anything towards college tuitions or towards my kids living expenses. So that was easy. Yes – I paid a higher interest rate on paper for the Plus loan — but the total amount of interest paid was not that high because of the early payoff
 </p>

<p>So it really depends on the individual – in my case, I am a self-employed, single parent, so I am acutely aware that I could be in big trouble if I became ill or otherwise unable to continue to earn income at the same level. So I was more comfortable with the Plus loan, because it seemed less risky. </p>

<p>That being said, I did limit the amount I borrowed, and the total amount was less than I typically earn in a year. (I didn’t think about that as a rule of thumb at the time, but that might be one way for a family to determine an upper limit for borrowing – and it certainly is a rule of thumb that I felt applied to debt my children took on in their own name). I think the loan=1 year earning capacity rule works because when you do the math, it results in a monthly loan payment that is manageable in relation to the person’s income. </p>

<p>Artsandletters, you’ve mixed a few concepts. Loans can be put on IBR (Income based repayment) for any qualifying loan; you don’t have to work in a government or 501c3 organization. You can stretch out the payments for 25 years.</p>

<p>If you do work for a public or 501c3, you can get the loans forgiven after making 120 qualified payments (don’t have to be consecutive). I don’t think Parent Plus loans qualify for forgiveness, and private loans do not. </p>

<p>Whenever you are paying more than the scheduled payment, make sure they put it toward principal and not future interest.</p>

<p>When you pay more than the scheduled amount on a student loan, it is going to be applied to principal. They can’t “hold” it and apply it to future interest. However, some loan servicers may then defer billing - -that is, if you pay twice as much as is owed in January, they then show your February payment as “paid” and don’t bill again until March. If the borrower has set up automatic withdrawals from their bank accounts, then what happens is that they send in an extra payment in January, the February payment is not withdrawn as anticipated, and so in March they really haven’t gotten ahead except for a slight reduction in interest. </p>

<p>Parent PLUS loans are eligible for forgiveness under certain circumstances – for example, death of the student, or death or permanent disability of the parent borrower — see <a href=“http://studentaid.ed.gov/repay-loans/forgiveness-cancellation#im-a-parent”>http://studentaid.ed.gov/repay-loans/forgiveness-cancellation#im-a-parent&lt;/a&gt;&lt;/p&gt;

<p>If the parent has a public service job, it appears that the direct PLUS loans also qualify for forgiveness – see <a href=“http://www.studentloannetwork.com/repayment/public-service-loan-forgiveness.php”>http://www.studentloannetwork.com/repayment/public-service-loan-forgiveness.php&lt;/a&gt;&lt;/p&gt;

<p>@calmom and others. Tks for link re public service and forgiveness of Plus loans. I was not aware that the availability of forgiveness was anywhere near as generous as my initial reading of the linked website indicates. The link appears to suggest that a student/parent combination could borrow an awful lot. Then if either parent or student is working for federal government, or as teacher etc and makes repayments for 10 years, any unpaid balance at year 10 wold be forgiven. </p>

<p>Perhaps the size of repayments are normally set so that the balance is cleared within 10 years for any reasonable level of income. If not, it seems that anyone going to work as, say a teacher, - or even if parent worked for federal government, or a state university, the borrowers could expect to have loans forgiven. Seems crazy - or am I misinterpreting what is written?</p>

<p>Payment levels depend on amount borrowed-- so I don’t really understand your comment. </p>

<p>The point of the income-based repayment forgiveness is basically to encourage people to take (or keep) government or public service jobs – or at least ensure that their loan debt doesn’t preclude them taking such work. </p>

<p>This reply is to a different thread, but also applies to this thread.</p>

<p><a href=“The Next Massive Bailout: Student Loans - #22 by CTTC - Parents Forum - College Confidential Forums”>The Next Massive Bailout: Student Loans - #22 by CTTC - Parents Forum - College Confidential Forums;

<p>Only certain types of loans qualify for the debt forgiveness, and the parent PLUS do not. Nor does having the parent work for a 501© (3), only for the student. Mark sure the type of loan qualifies if you plan to do 1) IBR -interest based repayment and then 2) public interest forgiveness.</p>

<p>Does anyone have any experience with the Sallie Mae SmartOptions undergrad loan? <a href=“Undergraduate Student Loans - Smart Option Student Loan | Sallie Mae”>404; It looks like it has some good qualities, maybe better than the Plus Loan? Down to needing a loan for the last few K now. Thanks!</p>

<p>Another alternative is to take out a loan against your 401k
you end up paying yourself back, so in the end you end up with the money back in the account. Obviously, if you leave the company and don’t pay the loan back, or lose your job, the amount not paid back would be considered a disbursement (whether it would have a penalty or not I don’t know, since it was used for college tuition), but it is an option, and the payment terms are usually not that bad IME.</p>

<p>I’m late to this one ^^^
My 401K only allows a total of $50K in loans. Also, college money is not considered an emergency and would be penalized.</p>

<p>I know folks who took out home equity loans or refinanced their mortgages. It’s not the right solution for many, but worked for them.</p>

<p>Wow! Thanks for sharing!
Good to know!</p>

<p>I’m new to this site and forum. We’re parents of our 2nd and last child going off to college in 2 weeks. I want to say that we didn’t know anything about Parent Plus and what we’ve learned we do NOT want to do this. I think it’s wrong that the colleges/universities/government says this is the only way our kids can go to college if the student or parents have not saved up enough monies. Cloudyweather I would like to say that I disagree with your statement “but some parents mismanage money / don’t want to pay for their children’s education. I know some ethnic Indian parents in USA who make their children take out loans (some even as high as $150,000+) for undergraduate studies. I feel sorry for these children.” Why is it that parents like you and even kids today feel they are entitled to their parents money to get them through college? What happened to kids working their way through college like we all did 30 years ago. When we mention to our daughter about getting a job or apply for scholarships she goes into “stressed mode” and yells at us saying “stop it, your stressing me out, none of my friends parents do this to their kids”. What in the world is wrong with kids today?? Why are they “entitled to a FREE education?” I would love to hear from other parents what you did if you did NOT do the Parent Plus.</p>

<p>Thirty years ago the average cost of attendance (tuition + room and board) to attend a 4-year public university was roughly $3400 See <a href=“Average undergraduate tuition and fees and room and board rates charged for full-time students in degree-granting institutions, by type and control of institution: 1964-65 through 2006-07”>http://nces.ed.gov/programs/digest/d07/tables/dt07_320.asp&lt;/a&gt;&lt;/p&gt;

<p>Maximum Pell grant was about $2100. See: <a href=“http://www2.ed.gov/finaid/prof/resources/data/pell-historical/pell-eoy-1985-86.pdf”>http://www2.ed.gov/finaid/prof/resources/data/pell-historical/pell-eoy-1985-86.pdf&lt;/a&gt;&lt;/p&gt;

<p>Undergraduate students could qualify for subsidized loans of up to $2500 per year. See: <a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid;

<p>Thus the Pell grants and subsidized loans more than sufficient to pay the full cost of college. If a student did choose to work, minimum wage was $3.35 /hour. See: <a href=“History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938 - 2009 | U.S. Department of Labor”>http://www.dol.gov/whd/minwage/chart.htm&lt;/a&gt;
A student who worked 10 hours a week for 30 weeks during the school year and 30 hours a week for 12 weeks over the summer could have earned over the summer (12 weeks) might have earned an additional $2,211 to contribute towards college-- erasing the need for most borrowing or providing extra fund beyond bare necessities at college. </p>

<p>Now? Average cost of attendance (4 year public college): $18,400 (see: <a href=“Trends in Higher Education – College Board Research”>Trends in Higher Education – College Board Research)</p>

<p>Maximum Pell grant: $5,645
Maximum Subsidized Student loans: average $4750 per year ($3500-$5500 depending on college year)
Additional federal unsubsidized loans: +$2000 per year
Minimum Wage: $7.25 hour</p>

<p>So the cost of college has increased by a factor of 5.4; while other resources available to student are about double of what they were before. So let’s imagine an 18 year old college freshman who qualifies for the maximum Pell grant and takes the maximum available federal loans - he has $11,145 in grants and loans, leaving a shortfall of $7,255 – meaning he has to work an additional 1,000 hours to make up the difference. If that student works half-time during the school year, </p>

<p>And that’s just with the hypothetical “average” cost of college- in many states the cost for attending a public 4-year college is well above that. </p>

<p>As a parent, you don’t have to borrow to subsidize your kid’s college if you don’t want to --but you owe it to your kid to make it clear that you won’t be paying for college when the kid starts high school – so the kid can plan accordingly. The financial aid system will count parental income in assessing need until the kid is age 24-- so a kid who wants to attend college but does not have parents to foot most of the bill is going to need to to consider an alternative path. </p>

<p>I just took out my first ever Parent Plus loan and I’m fine with it. Second (final) child entering junior year - and we are simply out of options. I’ll do it again next year too. It was an incredibly easy process and makes more sense to me than borrowing against home equity or retirement accounts. We borrowed $24,000 this year and I will assume it will be about the same amount next year. I feel the payment should be manageable. I wish we had more saved or could fund from current income, but it just is not feasible. Will I regret this come December 2016? I’ll let you know!</p>