Read this before you take out a Parent PLUS loan

Paying for College
1

Found a really good, kind of disturbing piece about Parent PLUS loans, which are the mainstay of financial aid financing for many of the conservatory schools we’re all targeting. (Boston Conservatory is #4 in terms of Parent PLUS burdens, NYU is #11.)

Some things to consider: the rate is 7.9% (home equity is under 4%), obligations cannot be discharged in bankruptcy and even your social security benefits can be garnished to recover defaults. It’s a truly terrible deal for parents – and also probably dangerous for the economy as a whole. (There is no income check to qualify, so people who make, say, less than $50,000 are being encouraged to borrow up to a quarter of a million…how do we think that’s going to end?)

2

If you have equity, by all means take the home equity loan. A home equity loan is secured, so that’s why it has a much lower interest rate.

You have to decide if you want to borrow at that rate or for the entire amount due to expensive schools like NYU. My kids couldn’t go to those expensive schools because I was unwilling to borrow that much. They were limited to schools where I could pay the difference between what they could get in merit, what they could borrow, and the cost of attendance. Both did it and did not suffer because they had to eliminate schools that cost (at that time)$70k.