Student vs Parent Loans

Paying for College
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<p>We're going to have to borrow to meet our EFC (after all grants/scholarships/Stafford have been applied). It's my understanding that EFC loans could either be taken by D, or by DH & myself. Regardless of how we do it, our deal with D is that she will only have to pay back the Stafford; any loan taken to meet EFC will be paid back by us, even if it's in her name.</p>

<p>Is there any downside to taking the loan in D's name instead of ours? A big factor for me is that D's payback wouldn't start until graduation + 6 months, whereas if we take the loan, we're having to come up with both loan repayments and EFCs for the next 4 years. I'd rather get the EFCs out of the way, and then at graduation, go all out on paying off the loans.</p>

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<p>In an award package you get:</p>

<p>unsubtidised loan (meaning you pay the interest)</p>

<p>substidised loan (if you qualify)</p>

<p>a parent plus loan (which the parents pay for)</p>

<p>grants (again if you qualify)</p>

<p>EFC’s are actually a code that determain if you can recieve grants or not (the same with the substidised loan).</p>

<p>How long have you been looking into this? When will she go?</p>

<p>***sorry it seems like i can’t spell today, so please forgive me… :(</p>

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<p>Don’t worry about the spelling, it’s late!</p>

<p>Her package looks like this:</p>

<p>Scholarship: $ XXX
Institutional grant: $ XXX
Federal Direct Stafford Loan: $3500
Work study: $XXX</p>

<p>Leaving us with an EFC of $XXX, about half of which we will need to borrow. The award letter mentioned that “parents apply for PLUS loans directly through the college rather than private lenders.” Does this mean we can ONLY apply through the college? Does it mean we HAVE to take a PLUS loan rather than a private loan? And can the gap be borrowed by her, rather than us?</p>

<p>She’ll be going to college in late August.</p>

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<p>First, the freshman Stafford max is $5,500 - don’t know why they’re only showing the subsidized portion, but there should be a $2K unsub Stafford as well. For direct lender schools, you do apply for Parent Plus through them if you choose to take one. Plus loans can also have deferred repayment, but I would suggest at least paying the interest annually. They do have some benefits that private loans don’t. But you can certainly go take a private loan - in your name, or hers with you as cosigner. Unlikely that she can get a private loan without you on it as well.</p>

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<p>Right, I should have mentioned that we’d cosign any loan in her name. </p>

<p>I didn’t know that you could defer payment on PLUS loans – is that something we have to ask for, and if so, is it always granted? What are the advantages of PLUS over private?</p>

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<p>I posted the same type of question on the Parents’ board (curious if we should borrow in son’s name & co-sign or use a PLUS loan). All anyone says there is not to use private lenders. The reason I am curious is because someone I was discussing this with in person said they got a better rate through a local credit union. </p>

<p>I’m still wondering. Like LasMa, I’m still trying to determine the advantage of PLUS over private.</p>

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<p>Plus doesn’t have the high intrest rates that the privite ones have…</p>

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<p>And the PLUS repayment terms are typically better than private ones…unless you have excellent credit</p>

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<p>We do have excellent credit and should qualify for the best rate. Discover’s best rate right now is 4.25. A whole lot better than PLUS…</p>

<p>But for us the major downside of PLUS or any other parent loan is that repayment begins right away. We want payments that begin at grad + 6. (We would pay interest as we go along though.) My understanding is that once D has taken the max in Stafford loans ($5500, right?), then all that’s left for her is private loans. Am I missing something?</p>

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<p>See, we have excellent credit too. </p>

<p>So many parents on CC seem to be able to write a check for the tuition, I don’t know if very many people on these boards have looked into other methods of payment. </p>

<p>My S is starting his sophomore year and last year our 529 covered anything scholarships/grants didn’t. This is our first year to use any loans.</p>

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<p>Well, here’s why we’re so intent on a student loan rather than parent loan: We have some high-interest debt that we want to pay off as quickly as possible. Over the coming year,if I have a monthly debt-repayment budget, I’d rather put all the whole thing toward the high-interest debt, than put half toward the high-interest debt and half toward a PLUS loan payment. </p>

<p>We should be able to get that high-interest debt paid off during this school year, as long as we’re not also making student loan payments. Then for next year, PLUS would make more sense, although its interest rate is still pretty high for us.</p>

<p>What am I missing?</p>

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<p>LasMa,</p>

<p>I did come across this info<br>
[FinAid</a> | Loans | Loan Tradeoffs - Public vs. Private](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>

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<p>“parents apply for PLUS loans directly through the college rather than private lenders.”</p>

<p>LasMa, this means that the school is a Direct Lender. You cannot use your choice of lender for a PLUS at this school - you must borrow directly from the government via the school.</p>

<p>You can always get a private education loan instead of the PLUS - they are just saying if you want a PLUS at that school, you can’t choose your lender.</p>

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<p>I’m with LasMa here - the best Discover rate (for those w/ cosigner parents w/ good credit scores, which we have) for a private student loan right now is 4.25%, and there is NO 3% origination fee, no guarantor fee, no other fees. PLUS loans, w/ the 8.5% interest rate and the huge 3% origination fee (and sometimes other fees from other lenders) seem to be a pretty bad deal in comparison. I realize that the prime rate will go up some in the next few years, but it would have to go up quite a bit to make that private loan as expensive as the PLUS loan - in particular if a family plans on paying off the loan in a few years.</p>

<p>The FinAid article linked to bbkitty, while helpful, pretty much makes the assumption that private loans will be more expensive. But this is NOT the case here, when dealing w/ parent cosigners who have excellent credit scores. </p>

<p>I’m with LasMa – “what are we missing?”</p>

<p>(That 3% origination fee really ticks me off, since it makes those loans QUITE expensive.)</p>

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<p>MomCat2, I’m with you here. On my thread on the Parents’ board, the only responses were to NOT use any private loans. I wish there were more parents on CC that had to use loans and could give some advice from experience-not just what they assume from govt finaid websites.</p>

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<p>Thanks, bbkitty.
I posted on that thread in the Parents’ Forum, with a link to this thread, in the hopes of increasing the chances of getting a response from someone w/ experience in this situation.</p>

<p>(prior to June 1st, Discover’s private loan rates were 1.5% lower, beginning at 2.75% (!). Wow. That would sure have been nice! [Student</a> Lending Analytics Blog: Discover Private Student Loan Rates To Increase Sharply on June 1st](<a href=“http://studentlendinganalytics.typepad.com/student_lending_analytics/2009/05/discover-private-student-loan-rates-to-increase-sharply-on-june-1st.html]Student”>http://studentlendinganalytics.typepad.com/student_lending_analytics/2009/05/discover-private-student-loan-rates-to-increase-sharply-on-june-1st.html) )
Running off to check the recent history of prime rate fluctuations…</p>

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<p>One other thing to think about with private loans is whether the lender will do a cosigner release. Discover won’t, but some others will, after 24-48 months.</p>

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<p>Thanks folks. I’m glad I wasn’t alone in wondering about this.</p>

<p>I contacted the college this morning, and the woman was MOST helpful about a number of things. A helpful and friendly FAO is a blessing from God!</p>

<p>First, she added D’s unsub Stafford onto her package, so we will get that in addition to the sub Stafford. She said it had been accidentally omitted from some of the early packages that they processed.</p>

<p>Then she advised us to keep D on our Blue Shield of California policy, rather than take the school’s coverage. (I’ll be asking our broker also, just to be sure.)</p>

<p>Then she explained to me it how it works if I want D’s work/study to go toward her bill. Each pay period, D will get her check, and then have to march it down to the Accounting Office and use it to pay on her account. Great practice for real life!</p>

<p>Finally, regarding this private-vs-PLUS business: She did offer the PLUS loan, and I explained why the Discover loan seemed like a better deal for our situation. (I think I even said “What am I missing?” lol) She agreed, saying that alot of parents with tier 1 scores are choosing private loans instead of PLUS. She also said that they work with Discover quite a bit. So that is the choice we’re making for this year, and I’m comfortable with it.</p>

<p>We should be able to pay off our high-interest debt during this school year, and we’ll revisit the issue next summer. Depending on Discover’s rates that time, we may very well go with PLUS for sophomore year. Or if they remain very low, we might go with Discover again and use the freed-up cash to pay off the 8% car loan. </p>

<p>In my short immersion into this topic, I think the lesson I’ve learned is that student loans are NOT one-size-fits-all. Perhaps for most families, PLUS is the better option. If there are credit issues, it definitely is the better option. But IMO it’s not the very best choice for every conceivable situation.</p>

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<p>Thanks for the informative post, LasMa.
A question - what qualifies as a “tier 1” credit score? Would parental scores of 760 and 790 be tier 1?</p>

<p>With the economy in such bad shape, it seems like it will be quite a while before the prime rate jumps up to 4 1/2% more than it is now (plus there’s the savings of the 3% origination fee for PLUS loans), making the 4.25% Discover loan very tempting indeed…</p>

<p>Did you know that people who took out PLUS loans before July 1 2006 have a current interest rate (as of July 1) of only 3.28%?! Lucky ducks!</p>

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<p>Thanks to MomCat2. When I looked at the terms of a PLUS loan I saw an origination fee of 4% and a interest rate of 8% and I thought that sounded terrible but I’ve never heard anyone else echo that. I’m really glad to know there are private loans with better terms.</p>