<p>In a word: No.</p>
<p>Some times taking a loan is the best way to go, even with terms that are not good, and some risks involved. In some cases, a “bad” loan is the best alternative. For those who post here, if I see the post, I try to make it very clear what the disadvantages are of taking a certain type of loan. I also try to give alternatives. There are cases when the best thing to do is take the loan and be grateful it is even an option, otherwise, the kid looks for whatever work he can scrape up, if he’s lucky enough to find any, and hopes something comes up as he gets older. I have family in that predicament and who have been in that predicament. </p>
<p>There are also situations when a truly good opportunity is there for the taking with much worse alternatives and the loans are the only way to get that brass ring. Sometimes it is the best thing to go for it. </p>
<p>Where I see the problem is when the kids/parents don’t understand the implications, risks and impact of these loans, and don’t give those points proper weight in consideration of the options. I see it all of the time and read about here too. Kid gets into a college that he so desires, and is gapped for aid. School costs are high because it is a “sleep away” situation. It’s where a lot of peers are going. It’s a good school, it’s what the student wants, but it is unaffordable without loans. A lot of loans. Parent is already in a tough place, financially. Can’t qualify for PLUS, can only co sign high rate tough term private loan. </p>
<p>The kicker to this scenario is that there often is a cc in the picture wthin doable commuting distance. And maybe some other college options as well that don’t involve commuting. I know that my kids as all kids in this area have a wealth of choices. But most of them don’t like the low cost choices and act as if they aren’t even there. That’s where I see the problem.</p>
<p>@adriax would you mind elaborating?</p>
<p>UK23, most medical students take out loans, and such loans are available with respectable terms for those who are accepted to medical school. For pre meds… that’s a whole other story. So is it worth it for a family who has a student with med school aspirations to pile on the loans for undergrad? Usually no. In the case where a student is accepted to med school and for some reason, say he is a foreign student, is not eligible for government loans, should he look at the private loans. Probably, depending on the other alternatives. I guess the question becomes whether it is worth the amounts being borrowed to become a doctor here in the US, vs a less expensive education elsewhere. In the UK, I would think that would be just fine. In a country where the training and degree will not get you gainful employment as a doctor, the US alternative might be the better one. You need to run the numbers.</p>
<p>“In a country where the training and degree will not get you gainful employment as a doctor, the US alternative might be the better one.”</p>
<p>Actually, it almost always makes better economic sense to do the foreign medical degree, then come to the US for specialization. True, the individual will have to take the USMLE series, but even with the cost of a prep course (if desired) that is bound to be less expensive than paying for med school here. Useful information on these topics can be found at [United</a> States Medical Licensing Examination](<a href=“http://www.usmle.org/]United”>http://www.usmle.org/) and [ECFMG</a> | Educational Commission for Foreign Medical Graduates](<a href=“http://www.ecfmg.org/]ECFMG”>http://www.ecfmg.org/) I know several US Citizen students who completed med school outside the US because of the cost difference.</p>
<p>It’s important to do the math for a decade down the line. Please know that colleges/banksters make it very, very easy to borrow a great deal of money. Our son receives a paper every fall and he could, with a simple signature, borrow enough to cover the entire year’s Cost of Attendance. </p>
<p>It truly is a variation of the housing bubble. When DH and I went house hunting, we first went to the bank. They looked at our credit history (excellent) and his salary (moderate) and offered us an enormous loan. DH penciled out the monthly payment and we were aghast. It was 60% of monthly income. Who can live that way?</p>
<p>Fortunately, we had been married a long time and knew that we scraped by with a rent at 25% of income. We needed to house hunt in that (much, much smaller) range. We did and are managing to keep the (small) roof over our heads. </p>
<p>For the future physicians: instead of borrowing for undergrad and then borrowing more for medical school, why not check out those programs that take service. The wonderful TV series “Northern Exposure” was all about Dr. Joel Fleischmann who had to serve in a rural community for three years as part of earning his M.D. There are still programs like that today, including getting medical training through the military. </p>
<p>You do not have to borrow tons of money to be a professional – the banks and colleges just make that a particularly easy road to take.</p>
<p>We are blessed to have a solid income, but with that comes $0 financial aid. I have heard people say that parents should NEVER sign a student loan with their kids. What have you experienced? Any words of wisdom?</p>
<p>^^^ This is the OP’s post. </p>
<p>The natural implication with a co-signed loan is that the primary signee (the student) will be paying back the loan and the co-signer is only on the hook if the student doesn’t/can’t pay. Therefore the responses have been based on that premise. </p>
<p>If the OP was planning on paying the loan back herself, she should have stated such because co-signed loans do NOT suggest that. </p>
<p>Sure, it’s ok to co-sign student loans if parents, grandparents, lottery winnings or the tuition fairy will be paying them back.</p>
<p>
</p>
<p>I think it is useful to break this question down into two implied component questions:</p>
<ol>
<li><p>Should a family EVER borrow more than the amount the student can sign for on his or her own (i.e., the Stafford limit, maybe with a Perkins supplement), to finance a college education.</p></li>
<li><p>If a family has decided to borrow more than the student can borrow on his or her own, should the parent co-sign the loan?</p></li>
</ol>
<p>In my opinion, the answer to question 1 is: HARDLY EVER.</p>
<p>There is almost always an affordable (i.e., no debt or low debt) alternative route to a quality college education. The large majority of students in this country live within reasonable commuting distance of public colleges – two-year and four-year – and the cost to earn a degree at these colleges are within the means of most families. Very low income families will qualify for aid. Most middle-income families can pay part of the cost from current earnings or savings.</p>
<p>In addition, many students will qualify for merit aid, which can bring the cost of a residential college experience down to an affordable level.</p>
<p>So no, for most families, it is not necessary to borrow beyond what a student can borrow on their own.</p>
<p>There are really only three categories of exceptions: those students who do not live within commuting distance of a state school; those for whom the available nearby state schools do not offer the desired academic program (e.g., nursing, engineering, etc.); and those from families with too much income to qualify for aid but who because of past financial decisions (or family disasters, such as medical expenses) are not in a position to contribute to the student’s education. For these families, it may be necessary for the family or the student to borrow over the Stafford/Perkins limit.</p>
<p>But there is no reason for anyone outside these categories to borrow more. There is no correlation between the cost of an education and the quality of the education, or the cost of an education and the value of the degree. There is a correspondence between cost and prestige, although there are number of outliers; many state flagships are more prestigious than many so-called “lower tier” private schools that would cost in-state residents far more, for example.</p>
<p>(Aside: I am not saying that a family who can afford to spend more is making a bad decision if it does not choose the cheapest alternative. Expensive colleges are, as PizzaGirl has pointed out, luxury goods. If that’s the way a family chooses to spend its discretionary disposable income, more power to them.)</p>
<p>Now to question 2: Given a decision to borrow more, should the parent co-sign the loan?</p>
<p>I would say, it depends, but probably not. I would think it would make more sense for the parent to take out a PLUS loan than to co-sign the student loan, and make a private agreement with the student about repayment. On a cosigned loan, both the parent and the student are on the hook. If the student defaults, the parent pays anyway. There doesn’t seem to me to be a fundamental difference between that arrangement and an informal agreement that the student will make the payments. Another advantage to the PLUS loan is that if either the parent borrower or the student dies, the loan is forgiven.</p>
<p>If the student-with-parent-cosigner can get a loan with an interest rate substantially less than that for a PLUS loan, then it may make sense to go that route instead.</p>
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</p>
<p>Thanks, annasdad. That was the point I was trying to make. BUT–and this goes to your Question #1–I think it depends on the amount. For large amounts, the Parent PLUS forgiveness/deferment advantages are important; for small amounts to fill a gap, lower interest rate and no origination fee can trump that. </p>
<p>On the other hand, if you need to borrow a large amount, I agree with you that a lower-debt education option is probably the way to go. I just don’t think it’s all that much better if your huge loans come from PLUS or stripping home equity. Private loans are not uniquely bad. </p>
<p>The OP has not given us any information about the cost of the school or the amount they need to borrow.</p>
<p>Buenavista, the problem with a cosigned loan, parent and child are both equally responsible for it. It appears on both credit reports and in many cases, if something happens to either, the other is responsible for it. For something short term like a car loan, it can make sense. FOr a long term large amount school loan, both parties are on the hook for a long time. With PLUS if either the parent or the student dies, the loan is forgiven. THose terms are often not there with the private loans.</p>
<p>*Quote:
If the student-with-parent-cosigner can get a loan with an interest rate substantially less than that for a PLUS loan, then it may make sense to go that route instead.
*</p>
<p>I can understand that a private loan may have a lower interest rate than Plus, but wouldn’t a private loan in the parents’ names ONLY be the same (or lower) interest rate than a co-signed loan with a student?</p>
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</p>
<p>I don’t think so. What kind of loan do you mean? The “student loans” we looked at were only available to the student (with cosigner). My credit union offers personal loans, but the rate is much higher than even PLUS loans. Not all banks even offer personal loans–the offerings may be limited to borrowing for specific purposes: auto, home improvement. Home equity loans are a possibility for some, but in our experience, it was a long process–there are a lot more hoops these days.</p>
<p>Private student loans can be applied for online and approved very quickly–that is part of their curse, and can cause lots of problems, I agree. But it can be helpful in some cases.</p>
<p>How do you feel about co-signing for a loan for a graduate degree? Here’s the scenario: a one year master’s program at Georgetown, program is very successful in placing students in biotech research jobs and/or top PhD programs. The amount of the loan would be about $50K. The private loan has fewer fees, is easier to get, and has a much lower interest rate - but requires co-signer. Student is aware the loan would be HER responsibility. </p>
<p>Thoughts?</p>
<p>^^^</p>
<p>What loans does she already have from undergrad?</p>
<p>how much will she likely be earning upon graduation?</p>
<p>What is the COL in the area that she’ll likely be working? $1500 a month rent? what? car payment?</p>
<p>or top PhD programs</p>
<p>Why not just apply NOW to the PhD programs? My son went from undergrad right into a PhD program…all fully funded with large stipend.</p>
<p>^^^^
Also, something to consider - often PhD programs do not transfer courses from masters if taken from another college. So, a student has to start all over after obtaining masters.</p>
<p>I also started right into PhD program after obtaining BS, funded by NSF. (Most) PhD programs are the best deals in college education (i.e. free). No need to obtain masers first, but you can pick it up on the way to PhD. It is like a safety net in case thesis does not workout.</p>
<p>I would say, no don’t cosign. Me and a parent keep the loans current but if she would ever get behind, and I don’t have extra money to pay it, her credit score would be affected.</p>
<p>If you do opt for a private student loan, check out the fine print for the loan. Pay particular attention to the variable interest rates and if there is a cap on the interest. You may be surprised to find that most lenders do not have a ceiling on the interest rate! So that “great” rate that you have today may not be that great in the future.</p>
<p>Thanks for all the feedback. </p>
<p>Answers: no debt from undergraduate. Excellent credit.</p>
<p>She’d live in Washington DC (expensive, yes, but she’s lived in Manhattan for the past year and is used to budgeting in a costly city.) She’s looking to share an apartment, she has no car. </p>
<p>Average first year wages with that degree are above $50K, higher in major metropolitan areas. </p>
<p>Daughter picked this program because felt unsure she has the stamina for a full PhD; this would give her an insight whether she’d want to continue. Over 30% of grads from this program go onto top PhD programs, quite a few continue at Georgetown with credit. The other two thirds of program grads are almost evenly divided between med school matriculation and industry placements. (She’s talked extensively with the department/professors/grads.)</p>
<p>Final note: D absolutely intends to pay this loan. However, DH and I wouldn’t be financially devastated if something terrible happened and she couldn’t pay it off.</p>
<p>Katliamom, in your case, it doesn’t seem like it’s such a bad idea. What the case usually is for private loans is that some how those magic words “co-sign” makes the whole shebang more palatable to the parents who don’t get that in feeling better that their kid is on the hook too, they, the parents are equally on the hook. Some of those private loans are not as flexible as PLUS, have both parent and kid on the hook regardless if one or the other dies (with PLUS if parent or kid dies, loan is forgiven). It’s on BOTH credit reports, so any forgotten payments or problems go to both, not to mention it is an amount listed as owed on BOTH people. It has a double whammy affect. ALso depending on the amount and terms, it can do this kind of damage for a very long time. Unless the interest rate is much more favorable than PLUS, it 's usually a better idea to go the PLUS route and do up a separate loan contract with the student.</p>
<p>For Graduate programs,…it’s a whole other issue. Your student has, at this point, proven that s/he has the stuff to do the school work. The maturity level of a college grad and career direction are much better defined than in an 18 year old who statistically is going to change his mind, almost certainly. I’m not at all familiar with what is available in terms of aid for graduate programs. Can’t your DD qualify for some federal aid on her own? Are the terms of the private loan for you to cosign that much better than what is available for her? I know that DH and my SIL took out their own loans for their MBA program, as do most all med school students. My friend’s DD who is in a graduate program that could but leaves the option open for a PHD in her field, that has no stipends offered also has loans that are available for her to take. </p>
<p>The key words here however are “DH and I wouldn’t be financially devasted if something terrible happened and she couldn’t pay it off”. The three D’s–death, disability, dropout can all happen to a student, and few loans will forgive for any or some of those possibilities.</p>
<p>Thank you for the thoughtful, detailed answer. You’ve given us much to think about. D supposedly researched the loans, but now it’s our turn do read the fine print before we make any decisions. Knowing what to look out for is very helpful.</p>