Trying to decide whether one is a better choice over the other for us. I would want to make monthly payments while my daughter is attending rather than wait until four years have passed and she has graduated. Will a student loan help her obtain a credit standing? What are the pros and cons of each. I realize her school does not charge interest but there is a yearly fee (I believe its $75) so that is a moot point really. I think that the loans might also be a good idea in the very rare possibility that we have a household emergency making the payment plan difficult at some point. Would love some input.
Well, fed loans have fees too. It’s a small amount, like 1 point something. I believe last year D’s sub loan fee was about 35 or 40 dollars. Our tuition pay system had a flat fee of 40 dollars to enroll and so it was the same either way.
In our case, we use both the tuition payment plan and the sub loan because we need both. Splitting it up with the sub loan and payment plan gives us more wiggle room and it’s quite easy to throw extra money at the sub loan early which both D and ourselves do.
In your case, if the sub loan covers the full amount you would need to take on the payment plan, I’d use that since the fees are likely smaller. If you treat it like a payment plan and pay it off by the end of the year. That SHOULD give her credit history a bump but I’ll admit I’m not being totally sure how that works with a subsidized loan being paid off before the payments start. It wouldn’t hurt certainly.
We used a payment plan for both of our two oldest, and will use one for our youngest, who will be a freshman this fall. We used the payment plans only because it was nice to spread out the payments.
If you can handle monthly payments now, why would you opt for loans to be paid back in the future?
We did not want to saddle our kids with loans. Student loans affect people’s lives and the decisions they make for years after college graduation.
You do not have to wait until after graduation to begin to pay off the student loans. You can start paying them down right away if you want to.
@eastcoascrazy ~ we are not planning to hold off payments, we would make them monthly beginning right away. I’m wondering if it will help her establish credit while giving me the added security in case of an unlikely household emergency. I agree that I do not want to “saddle my kid” with loans lol, and even if such an emergency did happen, I would pay the loans myself at the earliest possible time.
I assume I can still get the tax credit (is it Hope or Lifetime?) if the costs are paid via loan? I’m trying to figure out how to pay enough qualified expenses split between the tax credit for that and use my 529 funds as well.
@eastcoascrazy The OP is talking about a federal subsidized loan… not cosigning a private student loan which WOULD be a bad idea… if that was what she was talking of doing.
She’s also said twice that she’d be paying them off during the year just as she would the higher fee’d tuition payment plan.
I always assumed a graduate paying off a student loan was building up a credit score.
The lender could report the student loan during the deferral period, but doesn’t have to, and it’s not going to do much for the credit score because she isn’t making payments on a regular basis. She’s not in default, but not actually paying as agreed either. For installment loans, that’s what the credit score is looking for, payments made over a period as agreed. For example, if you take out a car loan with 48 payments but pay it all off in 3, you aren’t going to get as many ‘points’ as if you’d pay it over the 48 months.
I really don’t think it would matter that much toward a credit score to have a student loan. If she wants to build a credit history, have her get a credit card and charge a little, pay it off. Get a car loan if she needs one and pay it as agreed. The student loan would help eventually, but not in the first few years.
My husband’s salary is largely commissioned based and therefore very irregular. We are taking out a Parent Loan and our D is taking out a student loan. We plan to use whatever commission money comes in the Fall to pay for the Spring Tuition (you can cancel the loan disbursement) while paying off the loan from the Fall Tuition at the same time. This frees up our cash flow for any unforeseen expenses since this is our first child going to college. We are planning on using all of our 529 money to pay for the last year of tuition, loan free. Our D. will accrue approximately 15,000 in debt which we will hopefully be able to help her pay off after college and if not, won’t be too overwhelming for her. I have read studies that tie student’s having partial responsibility for tuition to better performance in college. I hope it proves to be true.
My student loans are reported on my credit report as “paid on time,” even when they were in their deferral period. I’m not sure how much it contributes to the credit score but there you have it.
Also OP, if you borrow a Parent PLUS loan it doesn’t go on your daughter’s credit, it goes on yours.
No Parent Loan…just student loans.
@savvyone, you might want to use 529 funds for the first year of college, they are supposed to be lowering the asset protection allowance drastically for 2016/17.