Since you like to keep things simple, I would go the route of Stafford and then 529 along with HELOC.
On another note, congrats on UCB. Great school. I am shocked to see how expensive CA schools are even for in state residents.
Here in NC, we pay ~$20K in state and it is about $45K for OOS.
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I am not going to take on PLUS loans because they are capitalized and interest is added to the principal balance. I don’t qualify for subsidized Stafford loans, so this can cause the balance of the loan to balloon quickly based on how the loan works.
I have enough in a 529 to pay for in-state public all-in, so I am hoping that the student will choose this school. I am taking her on tours of the in-state schools that offer the major she wants.
If I had to pay for a mid-priced private college, I could cash flow part and use 529 for the rest. I am taking student on a couple of mid-ranged private schools that offer merit aid to students like her.
I don’t want to set her up for disappointment. I also don’t feel bad about this. I saved as much as I could. She is lucky to be able to attend in-state public without needing loans. That is good enough.
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We paid the interest on the Direct Loans our kids took each year…every year. It was like we were subsidizing the loans ourselves. This didn’t cost all that much, and kept those loans from ballooning!
Is this logical if it would mean taking more loans than would otherwise be the case? The money has to come from somewhere to pay the interest. And if you take a larger loan you pay more in origination fees.
Did I say we took larger loans? Our kids didn’t even take the maximum Direct Loan each year, but they took some of it. The loans were taken because they improved our cash flow at the start of each term. We also did the monthly payment plan for college, and for us that worked out well.
We paid for college for our kids out of current earnings. This worked well for us as two income earners.
The amount we paid in interest annually was actually pretty small. Our kids graduated undergrad in 2007 and 2010.
The current rate on parent PLUS loans is 7.54%. I don’t consider that affordable or cheap. If I could get 7.54% on the cash in my savings account, I would be very happy.
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We absolutely would not have taken Parent Plus Loans…or HELOC, or personal loan, or cosigned loans. If we had needed to do that, our kids would have needed to choose less costly colleges.
But that was our family decision…and we were financially able to fund college without these types of loans
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Direct unsubsidized loans are currently costing 6.54%. Those will adjust July 1. So it is a similar problem as the parent PLUS loans.
If my kid borrowed $3000 and interest was 7%, wouldn’t the interest on the year be $210? We felt that was worth paying each year (self subsidizing) only because that $1500 at the start of each term helped our cash flow.
I would not recommend taking out full Parent Plus Loans which can be up to the cost of attendance.
For reference. Each of our kids had $10,000 or so total in Direct loans for undergrad school.
This is what we did. I’m not telling others they should so so. And I won’t comment on this further.
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The interest rate on federal direct student loans is 4.99% right now with a 1.057% origination fee.
https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized
The fed direct student loan interest rate will increase to 5.5% later this year.
Parent plus loans are currently 7.54%, with a 4.228% orig fee. The interest rate on parent plus loans will increase to 8.05% later this year.
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I started contributing to 529s for each of my kids the day I got their social security cards. Whenever I get my bonus each year the very first thing I do is find those. In some years that was basically all of it. So not a lot of fun, but it was important that my kids have the opportunity to go to college debt free. College costs increased more than expected, but I could theoretically pay the absurdly high EFC. My kids are currently in private school so their current tuition plus 529 savings could cover almost anything. However, they each have a pot of money, and if they use it up, any further costs are on them. While we aren’t exactly heavy merit chasers, D24 has chosen a path that requires a doctoral degree. So she is looking at merit to get a good match down to a level that would also cover post graduate. My kids, if they choose wisely, can have their entire educations covered or take on debt, that’s up to them. But I have given them the data on how starting life with no student loans can set you up to build wealth.
My middle kid was born a couple weeks after the market hit bottom in 2009 so their savings have done well. We can pay for a full year of college with the tax savings on the gains alone.
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I was talking about the loans listed here. Graduate school.
Undergraduate loans are what the other link is referring to.
My student plans to attend graduate school immediately after undergraduate school, so I have to consider both.
What state plan did you invest in?
We are in Texas, no income tax, so no reason to stay in the state plan, and I didn’t care for the limitations of the pre-paid tuition plan TX had at the time. 17 years ago, the Nevada Plan with Vanguard was the highest rated, and I have been very happy with the low fees and investment options. Looks like that one is still a top 3 rated plan.
It’s gone down a bit over the last year, mainly because while it was conservatively invested due to our time frame, bonds took a beating because of inflation. For my kid who is starting her senior year, we moved it to 50% cash a while back and I can live with that.
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Time horizon and simple market timing have had a huge influence on returns in 529s.
I also have top 3 rated plan but opened it 16 years ago. I put a lump sum in then and then used dollar cost averaging since then without interruption. I do have one year of public school tuition, room, and board available from earnings. I didn’t think it would add up to that much until reading your post but I can see that on the website so thank you for mentioning it. I am at a different brokerage but the asset allocation is similar.
Our leaders are in a glass bubble. They work on loan forgiveness when they should work on some type of programs that keep interest rates lower for college. That would help a great deal.
Leaving politics out of it - Interest rates are driven by overall market. Someone pays the interest on the loan, be it the gov’t (subsidized loans) or borrower (un-sub). Yes, the gov’t could institute a middle program where they cover a number of points off the loan (semi-subsidized?) but ultimately someone pays.
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There are efforts to address capitalization: https://www.forbes.com/sites/adamminsky/2023/02/16/student-loan-update-big-changes-to-interest-are-coming/amp/. However, it remains to be seen whether the efforts will succeed.
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In simple terms my question is whether it is better to borrow $3000 (from which an origination fee is deducted) and pay $210 in interest, or borrow $2790 and let the interest accrue. The difference is only a few dollars for a $3000 loan but for larger amounts (or for Parent Plus loans with a much higher origination fee) the difference would be greater.
We didn’t do larger amounts…so that doesn’t apply to us. We figured self subsidizing was a nice gift to our kids…but at the end, we gave them paying off these loans as graduation gifts.
NO Parent Plus Loans for undergrad…at all.