<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 studentâs 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 theyâre taken out, which adds to the sum owed. </p>
<p>@lynjobes: The Federal Direct unsubsidized loan is the loan that would be in your childâs name. Because it is âunsubsidizedâ, interest would run on it immediately â 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 â 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 childâs education. Or, to put it another way, they are saying: âhere is what we charge, and here is where you can go to borrow up to the full amount if you choose.â </p>
<p>Please consider another option for your child â 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 â in my case I decided on a $40,000 total cap on borrowing â that was to cover all the years of education)</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>
<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 âmayâ be the cheapest option depending on the financing. But that probably doesnât 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 itâs a good option if available.</p>
<p>A Parent Plus loan is a reasonable option if you can manage the payments. And the payments donât 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 familyâs financial situation changes).</p>
<p>No one can take away your house if you fall behind on payments for your Plus loan. Also â if you are falling behind on payments for good reason (you lose your job, you become disabled) â the Plus loan offers ways to adjust or defer payments, home equity doesnât. Home Equity loans sometimes have a pre-payment penalty, Plus loans donât. </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 â I paid a higher interest rate on paper for the Plus loan â 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 â 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 didnât 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 â 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 personâs income. </p>
<p>Artsandletters, youâve mixed a few concepts. Loans can be put on IBR (Income based repayment) for any qualifying loan; you donât 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 (donât have to be consecutive). I donât 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 canât âholdâ 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 âpaidâ and donât 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 havenât gotten ahead except for a slight reduction in interest. </p>
<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 donât 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 â or at least ensure that their loan debt doesnât preclude them taking such work. </p>
<p>Does anyone have any experience with the Sallie Mae SmartOptions undergrad loan? <a href=âUndergraduate Student Loans - Smart Option Student Loan | Sallie Maeâ>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 401kâŠyou 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 donât 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 donât 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>Iâm 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>Iâm new to this site and forum. Weâre parents of our 2nd and last child going off to college in 2 weeks. I want to say that we didnât know anything about Parent Plus and what weâve learned we do NOT want to do this. I think itâs 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 âbut some parents mismanage money / donât want to pay for their childrenâs 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.â 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 âstressed modeâ and yells at us saying âstop it, your stressing me out, none of my friends parents do this to their kidsâ. What in the world is wrong with kids today?? Why are they âentitled to a FREE education?â I would love to hear from other parents what you did if you did NOT do the Parent Plus.</p>
<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=âHistory of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938 - 2009 | U.S. Department of Laborâ>http://www.dol.gov/whd/minwage/chart.htm</a>
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>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 letâs 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 â 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 thatâs just with the hypothetical âaverageâ 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 donât have to borrow to subsidize your kidâs college if you donât want to --but you owe it to your kid to make it clear that you wonât be paying for college when the kid starts high school â 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 Iâm fine with it. Second (final) child entering junior year - and we are simply out of options. Iâll 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? Iâll let you know!</p>