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Parent Loans Questions

gratefulmamagratefulmama Registered User Posts: 195 Junior Member
First child going to college, instate, no need based aid, 35k full cost (w/room & fees). We are self employed and our income varies throughout the year. We sent both of our kids to private school from k-12 which didn't leave room for college savings, so now we are looking into college loans, and have a few questions on how it works.

I've gone online and have read the differences between the Parent Plus loans vs private loans. But I am not exactly clear how they work. Do we apply for a new loan each year or do we apply for a loan amount that will cover the estimated full four year tuition? (I assume a new loan each year but do they then combine your balances or do you eventually have four separate loans/payments to make?)

I was reading through the thread warning parents abt Plus loans, but the Plus loans seem like less hassle, more straightforward (goes direct to the school?), and has the added death forgiveness protection (which hopefully will not be needed but nice to have!) We plan to continue making the same monthly private school tuition payment as we have all of these years, which will leave abt 60k remaining upon graduation. But we will probably pick the plan that defers payments until graduation, as an added safety measure so that my child's education is disrupted if we should have a few bad months.

I understand parent loans are not recommended but considering we've managed private school all these years, I think we can handle it. We just need some good advise on where to start and how the process works.
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Replies to: Parent Loans Questions

  • twoinanddonetwoinanddone Registered User Posts: 12,996 Senior Member
    Your daughter should take the Stafford loans first, $5500 for her freshman year. It is a better origination fee and better interest rate.

    You would then fill out the Plus loan application and you apply by the year, and it is disbursed by the term (quarter or semester). You can borrow up to the rest of her COA after her merit aid, her loans, and any other scholarships or grants.

    You could figure out how much you can pay monthly and put that on a school payment plan. Usually there is a set up fee of $30-100, but no interest. Schools have different plans but some typical ones are 3 payments per semester, or 9-10 payments per year. This way you'd save the 5% origination fee on the Plus loan, and your payments would be lower, You could also borrow all you need as Plus loan and use your 'tuition' payments to pay the Plus loan immediately, playing all interest as it accrues.

    You do end up with 4 plus loans but you can consolidate them when she graduates.
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    @twoinanddone - thank you, that is very helpful! The 5% origination fee is based on the amount borrowed, is that correct? So if we made payments to the school for a portion of 20k and took out the plus loan for the remaining 15k, the origination would $750 vs $1750 for the full 35k? (Geez that seems high either way! Yikes)
  • twoinanddonetwoinanddone Registered User Posts: 12,996 Senior Member
    Yes, you only pay the origination fee on what you borrow. Say you need $20k per year for the school's bill, but can afford to pay $10k like you have been paying for private high school. If you only borrow $10k, your origination fee would be $500. You would, of course, have to pay the school the other $10k OOP ($5k per semester), and you may have to pay a set up fee for the school payment plan (DD's is $30 a semester). Other option is to borrow all you need for the fall, save up the tuition fees and use that in spring as a lump sum to the school, avoiding the 5% fee (you can adjust the amount you borrow each term) and the school payment plan fee.

    Do what is easiest. The fees aren't that much different. I'd do the payment plan and borrow less just because it would force me to pay every month and borrow the minimum. It might be hard to come up with the $1000 each month for the payment plan (if you plan on paying $10k) but better to skip the weekend away now than to owe it at graduation.
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    @twoinanddone - Thank you! You have been a great help. I agree, the payment plan would force you to make payments and prevent a huge balance in the end. The fee still seems high but I suppose that is like an added insurance policy for the death forgiveness protection.
  • ahill70ahill70 Registered User Posts: 46 Junior Member
    I am in the same boat. Trying to decide between the parent PLUS and private student loans with us cosigning. I plan to make payments either way but that origination fee seems high. I understand what you are saying about the death forgiveness. I am very confused as to what to do.
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    @ahill70 - I know, it's a hard decision! I am leaning towards Plus because it will be in our name and she will not be burdened if something should happen; since we intend to pay for it either way, I think it makes sense. Meanwhile, I am still researching the pros & cons of each.
  • austinmshauriaustinmshauri Registered User Posts: 5,574 Senior Member
    @gratefulmama, If your daughter is considering med school, I'd try not to borrow for undergrad.
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    @austinmshauri - yes she is considering med school but it's not definite. If so, she will be responsible for most of that cost, since we have a second child that will be in undergrad by then. I agree borrowing is not ideal but I don't see any way around it. We have been paying for private school for 13 yrs, so tuition payments are already a part of our budget. Plus we will be paying payments immediately, so the final balance should be cleared within a few years.
  • lookingforwardlookingforward Registered User Posts: 23,300 Senior Member
    The advantage to paying something on PP loans, while the student is in college, is that the full balance isn't accruing interest charges. (These payments start several months after disbursed. Eg, Feb or March, for Fall loans; sometime in summer, for 2nd semester amounts.) And private loans- as that debt grows, you may not be able to get a subsequent loan, whereas the PP can stay an option, assuming you still qualify.

    When you need that sort of help, the fees are a part of it. (Ours were rolled into the loan amount.) If you can avoid borrowing, another story. We had the same issue with paying for hs, as opposed to saving for college. The main thing is to be sure you can afford to pay back the loans, know where payments will come from, for the ten years. Some families think of it as help now and are overwhelmed later.
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    @lookingforward - When you mention PP loans are you referring to Plus?
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    Never mind, yes Parent Plus! Got it! A little slow this morning.
  • mommdcmommdc Registered User Posts: 8,206 Senior Member
    You said D is going instate, at $35,000 a year? Are you in Illinois or is that a private school?

    Does this price include need based aid which might be reduced in future years, if income goes up?

    Did she accepted at any schools where the price with merit is lower?
  • gratefulmamagratefulmama Registered User Posts: 195 Junior Member
    We're in CA. She is going instate public (tuition + room/board). She applied to several private schools but only received partial merit from one, which makes the tuition slightly higher at 40k for a school that she is not as excited about. We do not qualify for need. Our income is high but we are self employed, so it's also sporadic.
  • twoinanddonetwoinanddone Registered User Posts: 12,996 Senior Member
    You should check around for private loans because they may not have as high an origination fee (BofA, Sallie Mae, Discover). SoFi is a new company and I don't know if they originate loans or just do consolidations, but they do have higher standards. I don't think a private loan has to be in the student's name.

    The feds just raised the rates so we'll find out in July how the student loan rates will adjust.
  • sybbie719sybbie719 Super Moderator Posts: 20,435 Super Moderator

    If so, she will be responsible for most of that cost, since we have a second child that will be in undergrad by then.

    If your daughter attends med school, your income and assets will still be used to determine her eligibility for need based aid and you will be first in line as far as paying. The only difference is that she will be able to borrow more, which is why the undergrad debt should be kept to a minimum
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