lookingforward, the interest begins to accrue as soon as you take the Parent Plus loan, but you don’t have to make payments until the student graduates or leaves school for a specific amount of time (6 months usually). If there are taxes to pay on the cancelled debt upon death (cancelled isn’t the same as forgiven, so I don’t think there are taxes due, but if there are…) those taxes would be the responsibility of the person who died’s estate. The term policy would be paid to someone else (maybe a spouse, but maybe not) so the insurance wouldn’t necessarily be there to pay the taxes, if any.
^ I’m no accountant, but from the IRS: “In general, if your debt is canceled, forgiven, or discharged you will receive a Form 1099-C…Cancellation of Debt, and must include the canceled amount in gross income unless you meet an exclusion or exception.” (The IRS has gotten more aggressive about the issuing of these 1099-C forms.) (I do believe student debt forgiven in exchange, say, for teaching X years, is different.)
Yes, it’s an estate matter, but so many families, depending on the amount eliminated and other particulars, find it hard to pay the tax amount, emotionally or otherwise. If the estate is solvent, the tax bill has to come from somewhere. And taxes are one of the debt priorities in closing an estate, often left to a spouse. The first tax return is often still filed as married (so the spouse is the logical beneficiary.)
And yes, you can delay payments, but why wait for the clock to start 4 years later? If you start, eg, paying the freshman loan in freshman spring, that portion is done in 10 years and the monthly totals drop.
I don’t mean to seem to argue- or to cloud the waters. I do think the PP loans can be a huge help for those who go in with their eyes wide open.
But this isn’t correct. You CAN start paying, but you don’t have to. Yes, I think it is smart, but many either can’t start payments because they are using current income to pay some of the college expenses or just don’t want to.
I said I don’t know about the cancellation of a loan if the borrower dies. It is not the same as debt charge off. Sometimes it isn’t taxable. Under the 10 year cancellation for public service program, it is not taxable. Under the 20-25 year ‘debt forgiveness’ program, it is taxable. It is also taxable on a disability discharge. I don’t know for the PP loan after a death, or for that matter a Stafford loan upon death of the student borrower. There are a lot of exceptions to taxablity of charged off dept. For example, since 2010 the charge off from a foreclosed mortgage was not taxable under certain conditions. Term life can be quite expensive for a middle aged (or older) parent signing a PP loan, if the parent can even qualify.
I wonder if a non-working divorced parent in poor health with a terminal illness and good credit could take out a Parent Plus loan.
The application did ask for employment info - but no questions on income and they did not call to verify sctual employment. So, my guess is yes.
I applied and got approved for 4 Parent Plus loans - I am not employed. I was hoping that it was denied so more of the loans were in my kids name and not mine. Good luck Madison85!
My mother is unemployed following short- and long-term disability with good credit, and she was denied! We wanted her to be denied though, because after that my sister was able to take out more loans in her own name.
S2 graduates in May. Just rcvd my first notice that payments on my Parent Plus loan of $48,000 will begin in a few months and will be just under $600/month. For 10 years. Until I am 63. A bit sobering.
@rockvillemom - based on those numbers, you are paying $72,000 on a $48,000 loan. Just curious, where did your S2 go to school and do you believe his degree and earnings potential justify your current debt? A lot of us are faced with making similar decisions so it would be nice to know from someone that is experiencing this first hand. Also, is your S2 independently carrying any debt or does the $48k represent everything?
He went to Elon in NC. I believe it was a great fit for him and he has done well. We don’t have an in-state option that would have been a close equivalent. If we lived in VA - he would have gone to JMU. He has a $15,000 Federal student loan in addition to my Parent Plus loan.
Was it worth it? Probably, but I hate the debt. We literally ran out of money after paying for S1 and had to borrow for most of S2’s junior and senior years. Employment/income changes that I did not forsee.
I share this so others can get a reality check. I don’t know that I would do anything differently, but not thrilled with the debt.
Back when DS was looking at colleges, I had a “ballpark” thread to help me (and others) sort through loan implications. At that time I figured the typical unsubsidized stafford(?) loans of about $24K total would mean approx $300/month (10 years). The thread has more real examples too. - http://talk.qa.collegeconfidential.com/parents-forum/897652-loan-payback-examples-p3.html.
For many families, it is worth it. But you need to know what you are getting into beforehand.
@rockvillemom thank you so much for posting this! We’re the next city over - G’burg. Gives me a lot to think about…
@KimberleesDad - glad my experience is helpful. My biggest takeaway is the pitfall of making college financial decisions based on a certain level of income, with no guarantee that the level of income will remain steady. And quite frankly, as someone who works in a financial field, I should have known better. It is hard to separate the emotional decisions one makes about what you want to do for your kids from the coldly practical decisions of what is the best conservative financial decision. Classic heart vs head decision. I went with heart, bought into the idea that we should provide the best education for our sons that we could afford, or not really afford, as it turns out. I’m not saying I regret it or would make different decisions if I had a do over, but the debt we have keeps me up at night.
@rockvillemom, we are paying our kids Stafford loans right around what you are paying. We made a plan and have been trying to pay off this debt as fast as we can.
Depending on your income $2500 of that interest comes off your gross income. Any money we have from our tax return goes to paying off the loans.
As soon as the kids graduated they were on their own. We did not pay health insurance or car insurance or cell phones. We found by not paying these things and other things we paid for while they were in college, our expenses were lower. Anytime we had extra, that went to paying the loans down.
Any extra we have, any raises, bonuses, mileage or overtime goes to paying down loans. Now last year H had a lot of unexpected overtime and we decided to use part of that to go on a trip.
I do have to admit that we still live like we have kids in school. No big improvements on the house. A vacation other than visiting family, once every 3 years.
But we have been doing this pretty aggressively for a little over a year and have paid around half of the money we owed. When one kids loan is done, we will continue to use that money to pay the other kids off. I anticipate paying these off way before 10 years are up. It can be down. Just keep whittling them down, piece by piece.
Absolutely agree. I have no intention of paying this loan over 10 years. Frugality and accelerated debt repayment is the way to go.
I was able to pay off my Plus loans within 2-3 years of my DD’s graduation. Same observation: once I no longer had to support the kid, my expenses were lower and I had extra money available to pay down the loans. I’d note that I didn’t have huge loan in the first place – I had generally been paying about 50% of our EFC each year and then borrowing the other 50%, so once I no longer had that annual out-of-pocket expense for college costs, it was easy to shift over and pay the same amounts toward loans.
But I guess it’s all in the planning --that had been my intention all along and I pretty much had a clear roadmap to payoff in line from the start.
@Writestuff54 I am facing a similar situation. My daughter is pursuing a Dance BFA, she needs a school that will offer the connections and career opportunities. The one program that offers the three dance modalities is costly. I am truly weighing taking out a PLUS loan to cover the tuition gap. I am weighing all options your comments has been extremely helpful.
It is not just these loans that are problematic as a whole it is that the coast of tuition is truly obscene. We are bankrupting our children.
In many cases it is bankrupting the children AND parents. @TicaMom - You are wise to ponder this carefully. It might be tough for a Dance BFA grad to carry a debt burden.
We are in the same boat now, because both our kids will be in college for the next 3 1/2 years (my middle son took 2 1/2 gap years. He just finished his first semester of college.). I was going to take PLUS loans until I realized how expensive they were. I’m going to look into home equity loans and lines of credit. Sigh. The recession really put a dent in our engineering business.
If your kid is not majoring in a degree that can have a starting salary of $40,000 or more after 4 yrs of college getting a loan is not worth it. If your kid doesn’t score high enough on the ACT or SAT and have at least a 3.5 GPA it is probably not a good idea to get a loan. As a parent of a large family, my 3 oldest received full academic rides and my next one is looking at the service academies or use the military GI bill. Having debt right out of college for either the kid or parent or both is ludicrous. There is absolutely no way I am co-signing a loan for any of my kids college.