On the financial aid pages of the institutions my son is considering, virtually all of them counsel families that after exhausting Stafford loans, a Parent PLUS loan is much better than a private loan, and private loans should only be considered as a last resort. This seems like terrible advice. If you have decent credit, there are loans with lower interest rates and lower or no origination fees unlike the Parent PLUS. Any loan (of any size anyway) in a student’s name is going to have a parent cosigner on the hook regardless.
I don’t get it. The only advantage I can see to the Parent PLUS loan is that if I die before it is paid off, my son will not be responsible. I’m not that worried about this because the amount that we are contemplating borrowing would be covered several-fold by my life insurance policy and there would be more than enough left to finish his education.
I am leaning toward Sallie Mae. Am I missing something here?
PLUS is more flexible if you run into difficulties paying your loan. Also there is the insurance aspect of PLUS. Loan is forgiven if you or student dies. Also PLUS only shows up on one credit report, the parent’s. Yes, it can hurt your student to owe a huge amount of money if he is looking at financial services or security jobs. They check the credit reports. IT’s a known fact that those who owe a lot of money are more susceptible to abuse in those fields. Also, the interest rates are often comparable for PLUS and those Sallie Mae deals for a number of families–do tell us what yours turns out to be once you get the loan-- don’t know till then. PLUS is fixed and you know up front. Also it’s an easy process if you 've filled out the FAFSA to apply for plus and you get your answer right away. Not a lot of info and verification you have to give. But YMMV
You can get a fixed rate for Sallie as well - but you are right, the rate is not known until after application. Doesn’t mean you have to accept it. The 4% origination fee on the Plus…ouch. Same as our state student loan services, which have a lower fixed interest rate. My son is going into computer science/mathematics. I’m not sure it is worth thousands just for the insurance. I thought I was missing something bigger - it sounds like not.
Again, it will be on his credit report if he cosigns. And stays on it until it’s paid. If a large amount, could be an issue for career, since they will likely check his credit.
Also if you search on the internet, lots of parents crying about owing lots of money for dead kids’ education. But, yes that can be fixed with insurance. DO the math on what the premium will cost on both ends.
I think it’s great you are doing the research and will get a fixed rate to compare and make the decision. At some schools, the fin aid office is very pro state loan–Ive seen that ,and that may also be a worthy venue to examine.
The PLUS loan is the only one the school has control over (unless there is a school or state loans program, but I’ve only seen a few of those). The school knows the program and how much the parents will qualify for. The school can tell you that there are private loans available and point you in that direction, but cannot guarantee you will get the loan or the terms of the loan
The schools just stick the PLUS loan on the FA paperwork. No additional work for them until you decide to accept.
The school really has nothing to do as to whether the parent qualifies. You just go to it alone–that’s what we did We did have other lower interest options, but this was the easiest with less ramifications, no hassle. We started paying immediately, but if we had run into difficulties, could have extended it to 25 years, with no problems. Just finished paying ours off. Yes, it is expensive. In our case, the orig fee was particularly high as we paid off the loan immediately after taking it and in 10 years. BUt some people who stretch out the repayment period so they don’t start paying until 6 months after kid graduates and then takes the 25 year plan, that 4% is hardly anything amoritized over all that time.
I would start paying it right away…don’t think I could sleep at night thinking of the cha-ching of that interest accruing to the principal. Thanks for the perspective - very helpful.
The PP doesn’t start payments til the following spring. One year’s loans don’t disqualify you, as debt carried, for the next year’s. In reality, a plus and a minus. I’d say, keep the amount as low as possible and don’t be fooled by what can seem doable first year. By spring of senior year, those payments add up.
The school can allocate the amount. Afaik, all they know is you qualified. There’s an old adage not to borrow against retirement. Ie, don’t cash in the plans or hock the house. You really have to know what you’re doing, what you will pay each month, as the years go by- and how you will pay that- to make this make sense. “Nothing in life is free.” Or easy.
^ You mean if I accept a PP loan for September 1, I can’t start paying it until spring? That would be a deal breaker, as these accrue interest from Day 1.
We paid our right away which still meant 14 years or so of payments since we took one each year for the 4 yeas. BUt there were some times when the option to cut down the payments and elongate them, or ask for a hardship deferral as the economy tanked and some things did not go as planned. It was one less stress item that the option existed. Some of those other loans are truly run by sharks that will hit you up for any concession if they even give it.
@cptofthehouse, looking at direct.ed.gov, it states that requests for forbearance are at the discretion of the loan servicer and must be requested, possibly documented (presumably the bar is low). Can I ask which entity serviced your Plus loan?
When I was in school I took out Sallee Mae student loans. I found them great to work with. You can defer payments if you need to and you can still pay the interest.
From what I have read on this forum, the Parent Plus loans are easier to qualify for than most private loans. I suspect that the schools suggest them for that reason.
Knowing someone who used the forgiveness when a spouse died, I’ve started to think that aspect is more valuable than I would have originally argued.
I believe Sallie Mae processed my loans, 4 of them and 1 was some other entity, some male name involved, but can’t remember. THe bar is very low for any adjustments. THey are very eager to keep default out of the picture. We started paying on the loans immediately,but I can tell you when all 5 (one was simultaneous with another due to 2 kids in college that year) were in payment mode which was for 7 long year, it was miserable and we had no extra money. Then, it lightened up each year as each year’s loan was repaid. It was over 14 years of payments.
A friend of mine who went the cosigned route found that the lenders were very rigid. Any terms of change costs you if they even permit it. Not so with the PLUS loans. Since we had no intention of welching on them and would have only asked for forbearance or change of terms for hardship reasons, we’ likely have been granted any changes in terms. In fact at one time, we considered it because it was that tight for us. That’s why our later kids had cost limits for college. We simply could not pay any more without making some other financial moves that had repercussions that were even worse. We would go over and over the situation.
But none of my kids had loans on their heads, because we paid their DIrect loans as well. It’s better for them to take them out to the max, because the interest rate on them is lower. We took them out even when the young kids’ did not need them and used the to pay down those horrible interest rate PLUS which allowed us to finish up those loans about a year or so earlier. My sons are all loan payment free, which is our college graduation gift to each of them. Each of my sons with outstanding loans in their names at this point will have them paid off according to our will along with any other things owed, before anything else gets divided. We went through our situation and this was the best way to go. However, I think that this year, we shall pay off all of the loans, as we finally are in a financial place where we can do so. We’ll be debt free other than car (1% interest) and mortgage. But there were some very lean years for a while there.
If loans are forgiven due to death of the borrower, you get a 1099 and are expected to declare the amount on your taxes. There is also some option for loans to be discharged (different action) for things like X years of teaching or some other kinds of work.
By the end, ours was serviced by FedLoan. We had no issues. From some info from 2013, the four servicers were FedLoan Servicing (PHEAA), Great Lakes, Nelnet and Sallie Mae. I’m under the impression you may not get a choice. (When we took the first loan, we did and started with Nelnet. At some point, the servicer changed. I thought- and could be wrong- that this was based on geo location-??)
PLUS loans are forgiven if either the student or parent borrower dies.If the parent dies, I guess that 1099 goes towards his final year of income and the spouse has to deal with that, or file separately that year. If the student dies, that will go on the taxes I guess. There are no provisons to have PLUS discharged due to the student doing teaching or other kinds of work. That is an option with student loans, not parental.
Gee, my error about the discharge. Sorry.
Ok good information. I need to think this through some more. I am paying on my daughter’s direct loans and will do the same for my son. No spouse, just a deadbeat ex. Even with excellent life insurance that I do have, it might be worth the peace of mind knowing that my son will not be burdened if I die before being able to pay off the loan (not planning on it, but a la John Lennon, life is what happens while you’re making other plans).
Ask Deadbeat ex if she owes 90 days or more on anything on credit report and if she’ll apply for PLUS. If she gets turned down your student gets about $4K more of student Direct loan which has a more favorable interest rate and is eligible for reductions if student gets into certain types of work.
I know a family where the Dad was quite old before he had his kids. He was divorced from the mother. He was also dxed with cancer and knew it was just a matter of time, He took out PLUS to the max for both of his girls, just paid the interest on it and the minimum when the older one’s loans came due. He died after less than a year’s worth of payments with nearly a half million in loans outstanding, all forgiven. He had already transferred his accounts into joint ownership to his girls so that there was nothing to go against that last 1099.