<p>I have an opportunity to meet the tuition bill for Fall semester (DS is a freshman to be) without doing a complete drain of the funds I have set aside for him, a portion of my regular income that has been earmarked for his schooling support, and DS income and some savings he has.</p>
<p>If I think about investment returns (somewhat conservatively) of about 7 %, inflation about 3% or so…biting into these returns…</p>
<p>Is a loan at about an APR of 7 - 7.5% worth it?</p>
<p>Interested in other folks thought processes here. </p>
<p>I guess I’m looking for if someone has done a sensitivity analysis, and/or what factors people have looked at.</p>
<p>Some inputs that I am wrapping my head around.</p>
<li>College Cost Escalation</li>
<li>Interest rate fluctuations</li>
<li>Inflation Rates</li>
<li>Return on investments</li>
<li>Others???</li>
</ol>
<p>As I look at it it seems that alot of these are (or could be) inter-related.</p>
<p>Do you think that a private student loan is cheap money?</p>
<p>Back in the day, I think my loan rate was 3.5 or 4% or so…I would have had to have been an idiot to pay it off any sooner than the 10 year max I had. Of course these loans were fixed rate back then. </p>
<p>Is the paradigm different today? </p>
<p>I do not have the luxury of doing any federal sponsored loans. No not even a Plus.</p>
<p>Why not a plus loan? I thought that all parents are eligible w/decent credit... If it was me, I'd pay it out of pocket - but then, I hate loans. Most loans have origination fees, etc and the interest isn't always tax deductable..plus it's complicated. I like simple! :)</p>
<p>The school that DS is going to does not accept ANY Federal monies, including aid or federally sponsored PLUS loans.</p>
<p>Thats why I have to go the private loan route. I may consider a HELOC....but at least for the first semester, we are probably going the cash route.</p>
<p>Thanks for your feedback anxious.</p>
<p>My opinion is DO NOT take out the loan. If you earn approximately 7% on your own investments, which is pretty good these days, then after 40% state and federal tax that is only 4.2%. So you would be better off spending your own money. Also you are right about the origination fees.</p>
<p>Back in the day, my own loans had a 3% rate AND did not accrue interest until after graduation. Today's Stafford loans (and many private loans, I would imagine), accrue interest from Day One, even if the repayment is deferred until after graduation.</p>
<p>I'm very interested if anyone has a different take on this.</p>
<p>Worth noting, however, is that the interest on subsidized Stafford loans is paid for by the government.</p>
<p>However the subsidized loans have a needs test.</p>
<p>Very true. What's good though (depending on how you look at it), is that at any school that guarantees to meet 100% of need you get subsidized Stafford and Perkins loans first, then grants. I think unsubsidized only occur when you have no or very little need.</p>
<p>Thanks for the input. I gotta admit, the federal loan route is the way to go... But a route I cannot take.</p>
<p>I still don't understand why you can't take out a PLUS loan - but maybe I have this info wrong? All the credit unions and banks around here offer them - and they are not processed and do not go through the financial aid department at the college. Have you tried calling your local credit union and see if they offer PLUS loans? Stafford loans do go through the college, but my understanding of PLUS loans is that ANY parent can borrow to meet their EFC and it is not administered by the college. (And - now I'm curious!!! What college does not use Federal financial Aid??) :)</p>
<p>NOW I see. Wow! That is one bargain college in the costs department - but it seems unfair that you aren't allowed to get yourself a PLUS loan. But, at about the price of an instate public school, it's a great deal. :)</p>
<p>Cash is always better than borrowing money. The earlier post with the investment rate and tax calculations makes sense. Particularly when subsidized loans are not an option.<br>
One other thought...bite the bullet and pay the cash now. As the child continues in school, any reduction in cash on hand may help you to obtain aid in subsequent years (maybe not for the OP's school but for most people).</p>
<p>I had a question: if you borrow money for school, as the years progress, will that money be counted as liabilities when schools calculate your EFC and thus help you, or does that not matter?</p>
<p>The PLUS loan is a particularly bad deal if you have the option of paying with cash. It has a 7.9% interest rate plus up to 4 points in fees. The interest accrues from the date of disbursement.</p>
<p>
[quote]
NOW I see. Wow! That is one bargain college in the costs department - but it seems unfair that you aren't allowed to get yourself a PLUS loan. But, at about the price of an instate public school, it's a great deal.
[/quote]
</p>
<p>Relatively unusual yes....Perhaps singularly unique. This school thumbed their noses at Uncle Sam and won a Supreme Court decision back in the 80's I think to maintain independence. It is a great value though. Although it does have this disadvantage of higher cost funds for potential borrowers.</p>
<p>Good point Ebeeeeee... DS may qualify for need based aid in the future based on the reduction of cash reserves/assets. </p>
<p>I guess it is a completely different world of college financing than it was back in the stone age.</p>
<p>Thanks All!</p>