Running out of student loans?

Paying for College
1

<p>Hi! Got accepted to RPI and all, cost is just over $26k. One thing my parents are very concerned about is student loans. Specifically, they're concerned that, come my third or fourth year of college, the total amount racked up in loans might prevent me from being able to secure any other loans and I'll be forced to drop out and die old and alone.</p>

<p>Now, they get this fear from people they know who know people who have had similar situations. So before we go meet with some financial aid representatives (a few planned this weekend), I wanted to poll some people in general. What do you think the chances of "running out" of student loans could be if I go to RPI? Family income is ~$100k, and a pretty good credit score.</p>

<p>We'll be able to provide possibly a few thousand out-of-pocket, but a good majority of that $26k is going to have to be in loans. I'm aware of how much this will add up, especially with interest, but I'm considering the cost to be well worth the education. So if you would like to share your opinion on taking out such a large loan, feel free to. However the question I'm asking in this thread is if it's likely that I'll get to be a junior and no one will offer me money.</p>

2

<p>YOU personally will only be offered $5500 in Staffords, most likely unless the school lends you some money or also gives you Perkins loans. There are limits on the Staffords–look up the maximum, but you can’t hit that in 4-5 years of undergrad. So you cannot borrow $26K yourself. If the Staffords, Perkins and school loans are already in your school package, you have to go private for loans which means you need a credit worthy cosigner, and it’s going to be on the strength of his credit and income profile that you will get the loan. But it will also be on his credit record until it is all paid off, just as though he took out the loan himself, and these private lenders are very quick to go to the guarantors if the student can’t or doesn’t pay for any reason. It’s really the guarantor they are putting the clamps on because they know they can’t squeeze money out of stone, and that, my friend, is how they view students. </p>

<p>So it’s really a matter of family finances as to whether mom and dad can afford to take out or co sign for such amounts, not you. How much of that $26K can YOU and your family pay out of savings? ideally, at least a third between the two of you. How much can they pay out their budget, and how much can you make, like right now (yeah, get a job NOW fo weekends and after school and the summer) and during the school year. That is another third of the cost. Then you have about $9K in loans, and if RPI has not put loans in your package, you can easily get that $5500 in Staffords and your parents can apply for PLUS for the remaining $3500 which is a very reasonable amount to have to borrow. If turned down, you can get another $5k in Stafford loans which puts you up there for loans but is still a doable thing. If you are looking to borrow the whole $26, that is not so reasonable. </p>

<p>Most of us take on faith and past performance that future financial aid awards are going to be similar in nature to the one offered freshman year, barring any drastic change in financial situation. But, it is a fact that schools tend to expect upper classmen to assume a greater part of the expense as they move up, so yes, your student EFC or contribution can be expected to increase as well as the cost of the school. And the way the loan bubble for student loans is growing, it is not unreasonable to worry that the availability might be reduced in the future. But if you use the past, present, future income way of splitting the cost for yourself and family and can meet those costs, you are fine going this route. Otherwise going to RPI might not be an affordable option for you and your family. Families have had financial problems due to excess college costs. It’s a common problem and not one you want to saddle your family with.</p>

3

<p>Are you saying that your “family contribution” is $25k and you’re paying it all with loans?</p>

<p>Aren’t there already loans in your FA pkg? There probably already are $5500 in loans there.</p>

<p>Who would be paying back the $25k per year (in addition)? </p>

<p>Are your parents contributing anything towards college?</p>

4

<p>Just be aware that though the loan is supposed to be yours, and your parents are co signer, it’s their credit and financial situation that is on the line with them just as if they took them out themselves. Personally, they should take out PLUS if they want to do this because the terms are more flexible, the interest rates are probably lower than these private loans, and if they should pass away the obligations goes with them. The private loans have both you and them on the hook and the terms of repayment are not as generous. They are not dischargeable though bankruptcy and they will be aggressive about collecting them.</p>

<p>My dear friend has a daughter who took out $90K in loans over her 4 years, and is now working part time in a coffee shop. She has deferred the federal loans, but the cosigned ones have no such terms and have descended on the parents with a vengeance. The parents have split and one has declared bankruptcy, but the bank is still after them for the payments and has seized one account. I am not kidding when I say they are aggressive in collecting these and you can’t get rid of them. Your parents have to understand that these loans are a business proposition for these banks and letting you be the primary name on them is just insurance that they have yet another person to go after if the parents pass away.</p>

5

<p>The $26k figure already has some loans (about $7k altogether) figured into it from RPI’s package.</p>

<p>My parents could probably pay about $5k/yr out-of-pocket to bring it down to $21k. Our goal is to make any loans we have to take out my responsibility as much as possible. They will, of course, need to co-sign for me.</p>

<p>Are placement rates, academic performace, and job outlook factored into consideration for private loans at all? Or does it simply go on your financial standing?</p>

6

<p>So what you are saying is that the CoA at RPI is higher than $26K, and $26K is what you have to pay after your financial aid is applied. Your original package already incudes Stafford loans - possibly what seems like some combination of Direct/Stafford loans and Perkins, since Direct loans are capped at $5500 for freshmen. Your parents can only afford $5,000 a year, so now you have to borrow $21,000 a year to pay for this school?</p>

<p>This school is not affordable for you. If you take the financial aid package already offered to you, over the course of 4 years you will already have $28,000 in loans. Then, on top of that, there is another $84,000 that you are proposing to borrow. That is too much debt - over six figures. How on earth will you pay that back? You will be saddled with debt for years, and private loans do not have income-based repayment. It is very difficult to negotiate with them if you fall on financial hardship. And even if you are doing very well after school and make a high salary for a BA holder, you still won’t make enough to pay off that debt.</p>

<p>*Are placement rates, academic performance, and job outlook factored into consideration for private loans at all? *</p>

<p>No, because those things are not guarantees. Banks want their money, and the best way to tell who can/will pay is looking at financial history and current employment and income.</p>

7

<p>*The $26k figure already has some loans (about $7k altogether) figured into it from RPI’s package.</p>

<p>My parents could probably pay about $5k/yr out-of-pocket to bring it down to $21k. Our goal is to make any loans we have to take out **my responsibility **as much as possible. They will, of course, need to co-sign for me.</p>

<p>Are placement rates, academic performace, and job outlook factored into consideration for private loans at all? Or does it simply go on your financial standing?
*</p>

<p>Your future job has no bearing. Banks have NO assurances that you’ll finish college, change degrees, or get a great paying job. Period.</p>

<p>And, that is wayyyyyyy too much debt. Even an engineer shouldn’t borrow more than about $40k total. </p>

<p>How much do you reallly think you’ll be earning upon graduation???</p>

<p>BTW…your parents earn $100k, and they can only give you $5k??? Well, doesn’t that tell you something??? It means that making a good salary doesn’t mean that you’ll have much to put towards loans. The fact that your parents’ income goes mostly to housing, food, taxes, cars, etc is PROOF that people don’t have a bunch of money left-over to put towards loans. </p>

<p>Do you have any idea of what your monthly payments will be if you borrow $100k???</p>

8

<p>I don’t think you get it, Mike. By cosigning, they are responsible. And since you won’t be making much for a while, it’ll be the qualified cosigner on the hook for the payments. It’s just a formality and extra insurance that the loan is in your name. Better your parents take out the PLUS in their names, and you sign a separate loan document saying you’ll pay them so that they are not in the clutches of those lenders. Take a look, but those terms are not going to be so good. Many will want payment to start right away, so you’ll have to borrow even more to cover them, and the interest rates are not that great, nor are the fees. I checked out a few and they are definitely tough goes. Also, you are right in that the amounts may not cover all 4 years. Thing have been tightening up with these loans and they may no longer be available in the next few years. As it is, very few are doing consolidations of these loans any more, I noticed. But don’t fool yourself, even though in your name primarily, the lenders will have your parents right in their sights to go after them for repayment, and they move very quickly.</p>

9

<p>Because I just ran the Parent Plus calculation for another thread, I can tell you that a Parent Plus loan of $100k over 10 years will be $1200 a month for 120 months, or about $765 a month for 300 months (25 years).</p>

<p>So Mike, you’re looking down the barrel at a repayment plan, non-discharge-able even in bankruptcy, that amortized over 10 and even 25 years is still more than many people’s mortgage for the houses they own. Just not a good place to start out from.</p>

<p>Either your folks need to make a larger contribution in cash if they can each year, or you need to get seriously well-paying summer employment to mow that balance down to a more manageable number, or look at a financial safety, or start out at a community college and then transfer, etc.</p>

<p>The guideline for student federal debt is about $30,000, which costs a little under $350 a month to pay back over 10 years. That’s a car payment (or a car and a half payment if you’re leasing something like a mazda :wink: That’s about as hefty as you want to go in this job market unless you want to live in a box by the river, or your parent’s basement, or occupy the town square, or live off the grid, awaiting a post-capitalist collapse ;)</p>

<p>I am trying to make this really concrete for you. I know I still haven’t answered your question (yet).</p>

<p>You have a two-faced blessing/curse situation – your parents earn enough that you are “middle” to “upper-middle” class, meaning you can actually entertain options not readily available to some, and likely have financing options also not available to many (eg. cheap helocs, etc.) But your parents do not appear to be prepared for the real-world contribution required to send a kid to college. Even state flagships cost folks $24,000 k a year with housing included. So to say one can contribute $5,000 just isn’t ‘planet reality.’</p>

<p>RPI is an awesome admit and I’m sorry it isn’t more affordable for you. </p>

<p>Now, to answer your question, I can’t precisely answer your question because I don’t know enough about your folks, but here’s my guess at what they’re worried about:</p>

<p>In order to sign your loans, or take even parent plus loans, you need a reasonable credit score and “ratio” room to qualify. Parent Plus loans are more lenient, but not THAT lenient.</p>

<p>If your folks can’t afford more than $5k cash a year, I am betting it is because they are still paying a hefty mortgage, paying for car loans, paying for health care, have high utility bills, etc. I am betting they’re not squandering cash at the local casino or anything.</p>

<p>This means they may already be RIDING at a high debt ratio – but they pay on time so they have a good score. </p>

<p>Now, you get to Junior year and they have $50,000 more in unsecured debt going into their credit score. Suddenly the credit score goes down 100 points (that can actually happen if you get too close to a debt load threshold.) </p>

<p>Is it possible they wouldn’t qualify in junior year for another 25k? You bet it’s possible. Is it possible to run your ratio too high to get a Plus? Sure it is. Ask any kid who attends NYU if it’s ever happened to their folks – you see it on these threads all the time.</p>

<p>How to figure out if it will happen to you is:</p>

<p>a) ask your parents to find out if they have the capacity to borrow the FULL amount right this second. If they have the capacity to borrow $100k RIGHT THIS INSTANT, then they might not max out. (Note that if THEY can’t qualify, then YOU can’t qualify.)</p>

<p>b) ask your parents if it’s even remotely possible one of them could become ill, lose a job, or have to pay for unexpected medical expenses within the next three years. Unless they’re from another planet, of course it’s possible. The question is, what do they have set aside to meet such contingencies?</p>

<p>So, there are a lot of variables to consider, and their financial planner or accountant might be in the best position to calculate whether or not this is too great a risk for them.</p>

<p>At the end of the day, I think your parents have your back on this. I think they’re likely smart enough to realize they don’t have enough wiggle room to back you for this much in loans, and they are hoping to help you see first-hand that it’s not viable. </p>

<p>For whatever reason, the cost of college has likely caught them off guard. Maybe they never expected you to apply to expensive private schools. All that matters now is that you and they make intelligent decisions to avoid shackling yourselves to unmanageable amounts of debt. It’s tricky, and I wish you well in the process.</p>