I’ve actually been considering talking to my D’s middle school about such a thing/info night for parents.
I had massive loans after law school. I finished paying at 40…try not to overdo it! I am thankful to have enough not to need to for my kid, but I feel for kids whose FA is mostly these loans. They are not aid at all!
This post brings back our memory of the most “miserable” days in terms of our family finance. The amount we were expected to pay was 40-45% of our income (before tax.) We noticed our savings were in the “free fall” mode in those years. The financial aid policy was in general much less generous about a decade ago.
Our income has never been 150K. More like only about 2/3 of this amount or even less. Luckily, we have only one child.
We paid for more than 4 years. However, we were fully responsible for paying the 4 UG years, and paid only partially for the other years.
Hopefully, our S will not finish paying at 40. (Do not know how much the combined debt between his and his GF’s would be.)
On a positive note - the Parent Plus interest rate will be 6.84% for the 2015-2016 school year - down from 7.21%. It is based on May Treasury auctions.
https://www.edvisors.com/college-loans/federal/parent-plus/interest-rates/
This thread is insightful and very useful. Our son was accepted into an ivy league school and will be an incoming freshman this fall. After we received the finaincial aid package and our EFC we knew a loan was going to be needed. We looked into the PLUS loan and have decided to move forward with the PLUS loan. We have done our research including our plan to pay it back. Service the debt until retirement and withdrawal from retirement fund (it’s a Roth retirement fund no taxes on withdraw) and pau the balance. Between my husband’s and our retirement plans and social security and the balance left in our retirement fund we will have decsent retirement income.
We are looking at the loan as an investment in our child and his enormous potential. We sacrificed living in a much larger home in a neighborhood where schools are not great to living in a smaller home where the school system is among the best in the country. That sacrifice paid off and this one will as well. We believe my son graduating from a ivy league will change the trajectory of his and our grandkids and future ggenerations. Yeah it is worth it.
1 Like
We moved from a larger, more comfortable home in a worse school district to a small, much older home for the same reason. What we are not sure is “we will have descent retirement income” when we retire, unless we move to a much lower cost-of-living area. We can not have the cake and eat it too. Life is a compromise.
I think to some extent this thread is a little condescending in that it assumes that any parent that takes out a PLUS loan does not understand PLUS loans. Look everyone on this thread most likely has some kind of debt…home, car, expensive vacations. How much would you have saved if you took a local vacation didnt buy a car every two yrs and had a smaller home or are out less? We all make choices with our money and the debt we incurr. I think it is not wrong to want to make your child’s dream of attending a certain school a reality. Actually i think it is the smartest thing you can do with your money. I do believe there is such a thing as smart debt.
1 Like
“Smart debt” is manageable debt. The problem is that sometimes parents borrow more than they can manage to fund their child’s college, and they don’t always plan for contingencies. The advantage of a PLUS loan is also its disadvantage: household income and existing debt are not considered, so it is very possible for a family to borrow far more than they can afford to service.
Home: yes.
Car: Will be paid off in 3 months. A “cheap” (but new) car too. We have never bought any expensive car.
Expensive vacations: once every 10 years.
We co-signed one kind of our child’s loans from the institution/school.
This kind of loans is actually called “alumni loans” but I think it is still managed by the school. however, the loaned money comes from alumni’s “investment” and the interests are subsidized (not accrued) while still a student (and the payback of the loans starts two years after graduation, I think – is this a very good “deal”?.) Is this kind of institution loan considered as PLUS loans as well? The borrower is our child, but we are still “on the hook” since we co-sign the loans.
I just look up the terms of the institution/alumni loans:
Interest Rate is 7.5%
Co-Signer is required and must be a U.S. Citizen or Permanent Resident
Loan is interest free while you are in school
Grace period of 6 month
Up to 2 years of deferments
10 years to repay the loan
The interest rate is on the high side. But this aspect of the loan is good:
“Interest free while you are in school.”
10 years to repay the loan starts after 2 years of deferments.
It seems Perkins is the best kind of loan because its interest rate is only 5% and no interest while you are in school. My child got some in most years, but its loan amount each year is not high. (likely it is because we are not the poorest among all families.)
Agree 100%. I know someone who used a $25,000 PLUS loan every year to finance one of his 3 children’s education. She has graduated and he now has a $1000/month payment! He can handle it - but still has 2 younger children as well.
PLUS loans are a great option if you have already made a carefully thought out plan to borrow funds for your child’s college. But it is very easy to get in over your head.
Question for anyone on this forum: I am confused about who should be taking out the direct plus loan. Is it me (parent) or is it the student (with me cosigning or guaranteeing)? My son it thinking of ROTC (without committing to full service initially). But, if he commits to military service after they give him a full scholarship. I want to have the option of getting a full scholarship from ROTC and having to pay.
For undergrad, PLUS loan is for the PARENT. Parent signs, parent is obligated.
Undergrad students can also take out Direct Stafford loans, but maximum amount is limited – see http://www.direct.ed.gov/applying.html#loan
The parent takes out the PLUS loan - and the amount is whatever the school certifies that you need after other forms of aid are subtracted. So - the good news is you can borrow whatever you need to close the gap between the bill and whatever other funds you have available. Of course, that is also the bad news - pretty easy to borrow $20,0000 or $30,000 or more per year per child.
Nice summary of the pros and cons.
https://smartasset.com/personal-finance/pros-and-cons-of-plus-loans-for-parents
Note the rate is 6.84% for the upcoming 2015-16 school year.
Can you do a combination of the parentPlus loan in parents name and a private loan in studnets name? for instance, if I would be willing to take out 10,000 a year for the ParentPlus, could I then do a private Sallie Mae loan in my childs name for the balance of 10,000 a year? That way, we are sort of splitting the loan? (Also…ParentPlus does not have to go through credit approval, but the Sallie Mae will have to have a cosignor that goes through the credit approval. Or is my understanding incorrect?)
You could do that if you get approved for the private loan. However, is the student also taking the $5500 Stafford loan? That’s $15500 for the student for one year, plus $10k for the parents, a huge total for one year.
If the Sallie Mae loan needs a co-signor, then the parents are still on the hook for the debt in the event the student defaults. I like the idea of the creative financing.
Yes, I see your point @twoinanddone …I guess I am just trying to “talk out loud and brainstorm” some ideas. Hoping some merit and/or athletic money will come through, but in case it doesn’t, just trying to see what could be options. @ThreeRedheads , I would assume the Sallie Mae would need a cosignor. Any other creative financing ideas out there? Lol…Im new to the process and overwhelmed in reading information, but trying to keep my sense of humor.
@DVCmember, do you have any options for your student that don’t require taking out so many loans? Maybe a couple of years at a community college with a guaranteed admission to a four-year university or some schools with stats-based merit money?
College loans are reality for many families, but the more you can do to minimize them, the better in general. Unless your student is headed into a particularly lucrative field, too much debt can limit his choices in terms of future employment, etc. And you need to be careful not to leave yourself little wiggle room should your health or job situation suddenly take a bad turn.