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thanks for the info…our plan is to start paying the loans right away…we see no reason to wait till after graduation. We do want our child to have some “skin” in the game…but realistically…not that they are burdened for the first 10 or 15 years of their working life. Thats just us…the overwhelming reality is…college is too expensive…yet you really have no choice. What are your options these days?
right thx. sorry.
As you noted @eaglerockdude , you are fortunate to live IN California where there are more than several very well regarded public universities that you are lucky enough to have instate costs to attend.
To answer the question in your subject…if our kids needed aid to attend a college, we didn’t have the money to pay, they would not have been able to attend that college. That was our family decision. So to answer…our plan would have been to find a less costly way for them to complete college.
Here is part of a reply I wrote to you in 2019…about this very issue:
So…what can you do to make college a reality?
The Direct Loan of $5500 which is a student loan, will pay for tuition at most instate community colleges.
The student can go to school part time and work full time. Many students do this.
The student can commute from home. Save room and board costs.
The student can get a job, and contribute towards college expenses.
The student, if their SAT or ACT is high enough and GPA is high enough, can look for colleges with merit awards. And some colleges allow stacking of need based and merit up to the cost of attendance.
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Your plan kinda sounds like what we are thinking. We just don’t plan on buying any new cars or fancy vacations for the next 5 years or so… I have no problem with that. I like my old cars :>)
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can i ask how come you did not do parent loans? I am going back and forth as to what is better…either way…my daughter does not have any money to pay the loans while in school…so my wife and I will be paying…At some point years away…she can start helping out…so the choices are…student loan which is a “co-signed loan”…and parent loan…thats all i know of right now…I will apply for both…and compare I guess…
You are confusing two types of federal loans. The direct loan, sometimes called Stafford, are to the student. No cosigning, just to the student. That’s the $5500/6500/7500/7500 loans per year. It has a 1% origination fee and probably the lowest interest rate you’ll find (I think this year it was 5%). She would not have to start paying while in school, but interest would accrue unless she qualified for subsidized loans (which you said she didn’t)
Next is the Parent Plus loan. That is a loan to one parent. No cosigning by the student and no way to get it into the student’s name. It has a 5% origination fee and about a 7.5% rate. You can borrow up to the COA. It will not help (or hurt) her credit score. It is a loan to the parent, not the student.
Then there are private loans. Those terms are up to the lender. You can borrow as a parent or she can borrow and you can co-sign.
My kids took the direct loans but not the max allowed and it still seemed like a lot. We spent a lot of time finding schools they could afford or qualify for grants and scholarships. One picked a school that was almost $60k/yr, but she had almost all of it covered by scholarships, FA, grants (she was an athlete). The other went to a very inexpensive OOS school, got grants and scholarships and live like the very poor student she was. I paid what I could, they took out the direct loans, but I wasn’t willing to co-sign loans and they knew that when they were picking out schools
You read about kids graduating with $50k or $60k in loans? Those stories aren’t about my kids.
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Given this is a transfer student, with only 2 years left in college, there’s not much chance that a 529 will increase in value enough in the next 12 months to make a meaningful difference in funding needs. It’s not even plausible that the 529 will increase at 10%+ (the HELOC or parent loan rate taking into account the upfront fee) unless it’s in super high risk investments.
Spend the 529 and savings to cover as much as possible above the $7500 student loan and defer taking other loans as long as possible. Personally if the aim is to pay down as quickly as possible I would still use the HELOC, because the upfront fees on parent plus loans make them more expensive in the first year and HELOC rates (and first lien refis) will get cheaper next year if the economy tips into recession.
The only exception to this would be if your job is sensitive to the economy, eg in tech where you might get laid off. In that case you need to keep enough savings to cover that eventuality.
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Have him take the unsubsidized federal loan (7500), then empty the 529, then pay out of savings (you can take out a loan right up until April or so, and they’ll refund you what you paid), and only after that private or PLUS loans, or a HELOC if the rate is better than the private or PLUS loans. The advantage to PLUS loans is that they are forgiven upon the death or disability of the student or the parent. Take them out in only one parent’s name - if you come upon hard times, at least the credit of the other parent won’t be affected, and since all marital assets and debts get accounted for at (god forbid) a divorce, it’s not as if one parent is disadvantaged by doing this. Looks as if you can get private loans with lower points and lower interest rate than PLUS loans.
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The Heloc was my initial idea because I thought the rate was 3%, which it was when we got it…but after talking to the bank, turns out any “new use” now would be about 10%. Thats how much interest rates are going it. Initially it was fixed, but becomes variable now for some reason. Anyway…I am back to thinking its the best idea for now…much simpler. We have total control about how fast we pay it. Thanks. Recession? Think positive dude :>)
I would be surprised if you can find a non-secured personal loan for 5.99% for your child’s school. The issue with your HELOC (a secured loan) being at 10% calls into question who is lending at less than 6% for unsecured (a riskier loan).
I can get 5% on a 17 month CD right now which is one of the reasons I seriously question anyone lending less than 100 bps higher. Might want to do some more digging on the actual rates being given from those other non-gov’t lenders.
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An unconventional/extreme approach maybe, but my parents downsized their home and moved to a lower cost of living area when I started college, then used the money left over from the sale of the home to finance college for me and my siblings.
We also took out the direct student loans and had work-study jobs on campus.
Unless you think the rate of recovery on the 529 plan is going to exceed the interest rate (plus any origination fees) on loans, the best financial guidance is to use this money. I agree with what someone later said - not sure what you mean about “complications” - it’s a very straightforward program to use.
Likewise with savings - unless your savings is earning interest that exceeds the interest rate on whatever loans your taking out the financially wise decision is to use savings (unless its emergency funds you’re dipping into).
There is nothing fundamentally different about the interest structure on a mortgage than there is on any other loan.
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Is it possible to utilize tax benefits? We were able to get the AOTC. It’s a refundable tax credit worth $2,500 for up to 4 years ($10,000). Borrowed funds (but not 529 funds) can be used to pay the qualified tuition/expenses to get the credit. It may be worth reading through the irs website to see what other credits/deductions could apply.
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FYI, after July 1, 2023, federal direct student loans will increase to an interest rate of 5.5% and parent plus loans will move to 8.05%. Not sure if the origination fees of 1.057% and 4.228%, respectively, are changing.
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I am under the belief that the cost of a university degree is going to depend on several things. First and foremost is the cost of the university, second will be scholarships and financial aid. Once you’ve determined the cost it can be funded through savings, current income or loans. The student can only borrow directly from the Stafford loan program. Any other loans IMO should be considered part of the parent’s contribution. You can make an agreement with your child but being a lender is fraught with relationship complications.
On the whole I feel that IF (not everyone has that option) you can pay the COA after your daughters loans (she can also work and earn her own money, work summer jobs etc.) then do so. I see no sense in borrowing money even if you feel you can justify a potential small financial gain. By paying it now you eliminate loans in the future and once your child has completed her degree and become employed she is on her way to launching and your financial obligations are mostly complete. You don’t have to worry about what she owes or act as a lender. Good luck.
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Financial aid from Berkeley is available to students with family income (and non retirement assets) up to $217K for next school year. If this student is receiving nothing, they’ll likely be above the limit to claim the AOTC. AOTC | Internal Revenue Service).
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Pretty sure I claimed when my daughter was in junior college and I was not working…but now that I am working my wife and I do not qualify anymore.
I will research this thanks…