Be careful. Some folks have taken larger loans for kid number one…and by the time they got to kid number two or three, they realized they just had too much loan debt…of every kind.
Really…finding affordable colleges is a suggestion I would continue to make. Any chance for merit aid that would negate the need for loans for the younger kids?
There are 3000 or so colleges…and with good searching, affordable options are available for most people without having to have parents take loans.
Child number 2 does not have to commute. Child number 2 could get a decent merit award if the stats are high enough. That would ease your loan burden. Is that in the plans or is it an “apply wherever you want” strategy?
@thumper1 , ABSOLUTELY not allowed to apply wherever they want. Child #2 wasn’t even allowed to submit apps to two of his favorite colleges bc there’s no chance of affordability (so why go through the disappointment if accepted). Several other schools he clearly understands are financially unlikely and contingent upon merit, but we allowed him to apply bc merit at those schools could bring them into an affordable range.
Almost all merit awards I’ve seen do not cover room and board unless you are NMF or a recruited athlete. He’s not a candidate for the highest of awards at most colleges, but is applying to several where he’s in the top quartile of applicants.
Excellent! Hope he gets a great merit award.
If he can get close to full tuition, and then takes the Direct Loan for $5500…that will reduce your contribution annually. And a job for him should cover all of his spending money…and books.
Maybe you won’t need much of a loan yourself.
@thumper1 , thanks! Also on the agenda is having him apply for outside scholarships. Some of those go unclaimed at his school according to the guidance department. Even if he gets a few hundred dollars, it will help towards a laptop or books. Nothing to lose there.
I haven’t used a 401k for a few years, but isn’t the loan repaid with after tax income? So really no tax savings, and potentially a loss if your marginal rate is higher in the future. Plus the potential triple whammy of job loss requiring Roth IRA withdrawal during a market downturn. Or are you going to change your Roth allocation to overemphasize a money market fund just in case…?Doesn’t make sense to me.
What’s your mortgage situation? Perhaps refinance to extend the term, thereby improving cash flow without affecting FA much.
Usually taking on more debt raises your credit score, if you pay it as agreed. That’s just the pure credit score. If you apply for a specific loan, that lender may take your debt to income ratio into account, but Plus loans and most student loans do not consider debt ration. Nor do Plus loans consider your credit score. Parents can qualify for Plus loans in the amount of otherwise uncovered COA if they haven’t filed bankruptcy in the last 5 years, if they are not in default on major debts (mortgages, other debts over ~$3500), and haven’t defaulted on other government loans (their own student loans, VA, HUD, etc). It isn’t very hard to qualify.
I would check with a financial professional. We used a 401K loan years ago for our first house. It worked out well. The money went back into the 401K over time and grew.
Ordinarily, I would say it’s a terrible idea. Mainly because your company could go out of business or fire you. Since it’s a family business and solid, it seems less risky. But still. How can you guarantee that the loan option will be available when you need it? What will the terms be? How can you guarantee the company will be around?
The good thing is, you will not pay tax upfront. But when you borrow will that be considered income? Will that affect FA? Will that put you in another tax category?
I would sit down with a specialist and tell them what you know, what you have saved and the likelihood of each kid going to college and what type. It won’t be a perfect plan but you will then have more options on the table. They might also be able to offer other options like kids working during the Summer ( this could help a lot) and the lowest cost loans.