@cshell2 oh thanks for the clarification ? good catch by @PurpleTitan
Where is 12% coming from? PLUS loans are not 12%. They are 7.6% this year & 7.08% after July 1. Big difference.
While I worry very much about students and parents borrowing too much, I do not believe in taking away the ability for families to be able to borrow these loans. To do so would be detrimental to so many people who have no other way to get the education that will allow them to lift themselves or their children out of their current circumstances.
@kelsmom - Add 4% to that rate which you have to pay as an origination fee upfront.
We can agree to disagree on Plus Loans being the only way for some people to get an education, they weren’t even in existence before 2008 and people managed. I think that in their current form they are doing more harm than good. They are driving up the cost of college for everyone and the last thing a person needs in bad financial circumstances is a pile of debt. I have seen too many real life situations where things went horrible with them. It’s really no wonder, as it’s hard to not make stupid emotional decisions when it comes to a child’s college, if you combine that with not being financially savvy to begin with and things can spiral out of control very quickly.
For example. I make 45K/year. I was offered 32K in Parent Plus loans as financial aid for DS at one school. They were going to give me over 120K on a signature making 45K/year when I’m already extended on my mortgage as it is. How is that remotely reasonable? Of course, I would not consider doing that, but there are parents with first generation college student kids that just want to “lift their children” and aren’t thinking clearly. I know we shouldn’t have to protect people from themselves, but at some point letting all these people sink themselves financially is going to bite us in the ass.
I’ll step off my Parent Plus loan soap box now. I’m probably offending people that have them which was not my intention.
My reaction was: we shouldn’t need parent loans to send our kid to a public university in-state. And yet many students or parents have to. The problem isn’t parent plus loan but how to fund college and scholarships so that public college can be debt free for all who qualify.
I like how a lot of states are starting programs with free tuition if you have a certain GPA/test score. I can’t get on board with the “college should be free for everyone” crowd because I don’t think everyone belongs there, but for those that do, there’s a good ROI in educating the future taxpayers.
So here is a question…what happens to that student loan debt if the person dies? (sorry- I know that’s morbid) But if a large portion of debt is being held by progressively older individuals…its going to happen to all of us at some point (death)…I assume assets must be liquidated to handle the debt, but what if there are none at that point? Lender takes the loss??
Student loans (including Parent Plus loans) are discharged at death. The lenders get nothing from the estate.
@cshell2: I edited to add “all/who qualify” - rather than “for anybody regardless of qualifications”, clearly 4-year college isn’t for everyone.
@cshell2 – Do you know if the discharge rule changed recently? I thought I recalled reading on CC several years ago about parents taking out life insurance on students b/c the loans would not be discharged upon death.
A quick Google search shows that your statement is correct, but now I am wondering if this is a recent development.
@CT1417 - Parent Plus loans were always dischargeable at death, but before last year you had to pay income taxes on the forgiven amount.
You’re probably thinking of parents cosigning on PRIVATE student loans. Those do not go away and if the student dies the parent is on the hook. Worse yet, it all comes due immediately upon death.
I probably should have been more specific in my pp about student loans having to be federal.
I am not over 50, but 46 so pretty close. My student loan debt is from my undergrad, there were deferments, forbearances, and for the last few years I have been on IBR. My payment is set at $0, I can’t afford to make payments(barely scraping by), and of course the amount keeps growing, it is now close to $40,000.
My oldest son is starting college in the fall, he has enough scholarships along with his pell grant to cover everything, so as long as he doesn’t lose his scholarships he will be able to finish undergrad with no debt. I told him early on that I couldn’t take parent loans and worked to help him find a way to go without loans, but I was first generation college and we didn’t have the internet back then to research so we had no idea how things worked.
@cshell2 – Thank you for the explanation. The problem was not with your post but with my lack of knowledge!
I should probably go off and google this, but are PP loans capped at a certain $$ amount? And then private loans kick in above the PP amount? Are PP loans ever subsidized or do they start accruing interest as soon as the money is borrowed?
@CT1417 - Parent Plus loans have NO LIMIT. This is absolute insanity to me. But as long as you pass the credit check in that you have no “adverse history” (meaning no bankruptcy, defaulted loans, repossessions, etc), then you can borrow 100% of the cost of attendance minus any aid that was already applied. There is no check of income or debt to income ratio at all. Zero.
Of course, a lot of lower income people won’t pass the credit check, if the parent is denied the student is allowed to borrow more on Stafford loans (12K/year I’m thinking, but I may be off on this). Then if that is enough or if the parent refuses to take on a Parent Plus loan, it’s the private loan route for the student where the parent still has to cosign (which I would still think would be an issue for the ones that failed the credit check for PP loan).
I assume pp loans start accruing interest immediately (on top of the 4.2% fee you pay upfront), but I haven’t looked into that.
All student loans, including Parent Plus, accrue interested immediately. On subsidized loans, the government pays the interest while the student qualifies (still in school, in Americorps, etc) There are no subsidized Plus loans or grad school loans.
The APR is not calculated by taking the interest rate plus the origination fee to get a 7% loan or 12%. The overall APR would be much lower, maybe 8% but you’d have to know the amount borrowed, the fees, and the length of loan to figure that out but in fact the fee may not be part of the APR (some, most, are excluded from the formula so the APR would still be 7%, same as the interest rate). It’s a fee, and it hurts, but those loans aren’t getting to 12%.
Government loans are discharged on the death of the borrower or the student. Private loans have their own terms but the reason there is a co-signer is to make someone responsible, usually the parent/grandparent. If the co-signer dies, the loan usually goes on without the co-signer. Some banks do release the co-signer after two years of on time payments, but not all.
Sadly, a friend of mine learned that the hard way when her son was killed in a car accident after his freshman year in college. The loans weren’t discharged, and she had to start making the payments.
@twoinanddone - Yeah, my bad on the APR math. I had also assumed the fee was rolled into the loan and you paid interest on the fee for the entire term, but now I see that it’s deducted from the disbursement, so if you request a 30K loan you only receive $28740.
maybe someone can help me understand why the average of $30K per student is a bad thing or cause for alarm? Is it the overall abundance - they fact that more people are doing it now verse before when they would choose to just not go to college?
According to Kelly Blue Book the average cost for a NEW car in 2019 is $37K. So the price of one’s education (which gets you the elevated wage job/career in order for you to be able to buy said new car) is actually less than that of a new car… and your education is for life, new car will last at most 15 years (or 250,000 miles!)
Just curious as to the uproar regarding students in essence taking out on average $7,500 per year (or roughly $3,750/semester) when other ‘luxury’ purchases cost even more…
I don’t know if averages are the best way to look at it though. The number of borrowers with more than 100,000 in debt has quadrupled in the past 10 years and 1 in 5 of these default in the first 5 years of repayment.
You have to agree that people taking student loans into retirement and having SS garnished to pay for them is a sign of an issue in the lending don’t you? Maybe making them bankruptable would help. Then the banks would be a lot more careful about how much they allowed.
One of my kids has a very good job and a $15k total loan. It really isn’t a problem for her to pay the $150 or so per month.
One of my kids has a minimum wage job and her payment is more like $250 (hasn’t started yet) plus another $50 or so for a Perkins loan. She will struggle with every payment and she doesn’t have $30k in loans, more like $22k. Could she get a better job? Sure. Could she work 3 jobs? Will probably have to. She bought her grandmother’s 17 year old car for $2000 (still paying on that) and will have to take over the insurance soon.
My niece got a good job a year out of college, but it only paid $38k per year in DC. She’s lucky that her parents paid her student loans (I’m sure the $27k) for a year or two until she could get a raise, bonus, etc., just to get ahead. She pays insane amounts for rent because she wants to live in the city as she has no car. She walks about a mile to work every day and bikes a lot of other places. Her parents also pay her health care but she turns 26 this year so she’ll have that expense soon too. I know her first week she was asked out for drinks and thought they were paying but they didn’t! That $25 really through her budget off because her budget was THAT tight.
So, it’s no problem to have a $30k loan if you are like my first daughter and have a good salary, but if you are like my other daughter or niece, it is a struggle.