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Read this before you take out a Parent PLUS loan

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Replies to: Read this before you take out a Parent PLUS loan

  • gratefulmamagratefulmama Registered User Posts: 180 Junior Member
    From what I understand: HELOC usually have a variable interest rate with a ballon payment at the end. PP loans are fixed interest rate loans but have a orientation fee. PP loans have a death forgiveness clause (if the student or parent dies), HELOCs do not.
  • calmomcalmom Registered User Posts: 18,311 Senior Member
    Also, PLUS loans do not require income qualification - just good credit; and no prepayment penalty.



  • twoinanddonetwoinanddone Registered User Posts: 11,800 Senior Member
    A HELOC could have a much lower interest rate as it is secured. HELOCs rarely have prepayment penalties, but when comparing you should compare all the fees and charges. Recording fees, origination fees, application fee, appraisals? The PP has a 5% fee, but the HELOC could have a lot of little fees that add up to 5%.
  • BarbalotBarbalot Registered User Posts: 352 Member
    edited April 4
    I have a HELOC that I'm holding in reserve once I run out of what I've saved for D's college. I think just about all HELOCs have adjustable rates, tied to the prime rate, which until the last year hadn't been going up. My rate now is 3.49 percent. I had no closing costs as long I keep it open for at least three years.

    The way mine works is I can borrow (you set a certain maximum amount when you open the HELOC) for 10 years and then have 10 years to pay it back. For the first 10 years you must at least make the interest payments each month. You can also start paying down the loan anytime. I have a $50 annual fee.

    You can deduct the interest as mortgage interest on your taxes, which is an advantage. The main disadvantage I see is that, as @gratefulmama noted there is no death forgiveness. You also have to have a fair amount of equity in your house to be approved.
  • fleishmo6fleishmo6 Registered User Posts: 414 Member
    edited April 4
    @TampaGirl21 , @twoinanddone , Upon graduation and getting your job, you can combine parent plus loans with yours and totally take them all over in your own name. Not all banks/companies will do so but it can be done.SOFI, will do it if your new job salary qualifies.My son just did it with us. Now we will help as much as possible but with three other children you can only do so much.
    Obviously,twoinanddone is correct, the least amount of loans is always best and her repayments are right on.Those along with law school debt will put you in a tough spot
  • twoinanddonetwoinanddone Registered User Posts: 11,800 Senior Member
    @fleishmo6 , you may be able to combine the Plus loan with other student loans at a private lender like SoFi (and they will only take the most qualified grads, who have jobs) but you cannot combine a Parent Plus loan with a student loan on a government refinance program. If you do private refinancing, it means you'll lose all the government loan perks like income based repayment plans, forgiveness on death of student or parent, maybe a low interest rate.

    One reason to pay the origination fee of 5% for the Plus loan is to get the benefits. You refinanced to change the liability, but that may have cost you (and your son) some benefits or some actual cash.
  • gratefulmamagratefulmama Registered User Posts: 180 Junior Member
    Hate to ask this morbid question, but does anyone know the details about the death forgiveness if married? Is the loan forgiven if either parent dies, if one parent is still living? Or does the living parent resume responsibility? The language says if "student or parent" (singular) dies but that is not how debit works when married.
  • SyrAlumSyrAlum Registered User Posts: 431 Member
    If the borrower dies, the loan is forgiven. If the borrower's spouse dies, the loan is not forgiven. This is, imho, a good reason for splitting the loans between spouses. Unfortunately, I have a good friend in this situation. Because she misunderstood how the parent loans worked, she took out plus loans for all for years of her son's education in her name only, none in her husband's. Shortly before their son's graduation, her husband was diagnosed with stage 4 cancer and passed away about 6 months later. Now, she is in the terrible position of having to pay back those loans on just her salary.
  • gratefulmamagratefulmama Registered User Posts: 180 Junior Member
    @SyrAlum - Thank you! I think I am the only one that signed the FAFSA, so don't know if we will be able to split the loans or not. Definitely something to consider. I'm truly sorry for your friend, that's horrible!
  • kgos16kgos16 Registered User Posts: 861 Member
    @gratefulmama Even if you are the only one that signed the FAFSA (only one parent is required to sign) either parent can borrow a PLUS loan, or you both could borrow (one parent for fall, the other for spring, etc.). Any parent who applies for a PLUS loan will need an FSA ID and password to complete the application.
  • gratefulmamagratefulmama Registered User Posts: 180 Junior Member
    @kgos16 - Very helpful! Thank you!
  • PheebersPheebers Registered User Posts: 498 Member
    We did a HELOC -- and it's worked out beautifully for us. Our income fluctuates throughout the year, so it's been a cash flow management thing more than anything else. The interest rate is less than 4%, we had almost no fees, and we can draw exactly what we need when we need it. You do have to have the equity and do a mound of paperwork.
  • WISdad23WISdad23 Registered User Posts: 678 Member
    Long thread and I have not read it all. But I found the article informative but biased in that somehow the PLUS loan program (or colleges that utilize it) are predatory and that the parents/students are innocent victims.

    The author seems shocked that someone who borrows $150,000 for his children has to work longer than he would otherwise work without the borrowing. Who else does the author think should be working to pay for those loans? The same people complaining about too free access to credit would also complain about "discrimination" if PLUS loans were means tested. Of course these are government loans because no private entity would be crazy enough to write these loans.

    And what about these knucklehead parents? At some point there is a stupid tax. And at 7.5% it is much less than the 12% paid on my PLUS loans. To think that a pharmacist cannot figure out a financial aid package and is somehow a victim of PLUS loans is absurd. And that the same guy did it three kids in a row? And even more bizarre that one of those kids is considering grad school? How about a job? The sense of entitlement in these articles is breathtaking.
  • colorado_momcolorado_mom Registered User Posts: 8,196 Senior Member
    @TampaGirl21 , - Please do more homework about the loan situation. It you take out @23K/year (plus $5500+) student loan.... you will probably be overwhelmed by debt (if you even qualify for more loans) at law school. And if you don't get into law school, I'm not sure a pre-law major will yield a job capable of such high student loan payments.
  • sdwm70sdwm70 Registered User Posts: 4 New Member
    edited April 25
    This article is scary . . . and while I am not a finance expert, it sounds like the government gives huge amounts of money away freely to people who may not understand the repercussions of taking on more debt than they can afford, and the colleges, public and private alike (but especially private) seem eager to keep their costs high and get their hands on as much of this money as possible. What motivation does any school have to keep tuition costs under control when they know parents can and will borrow the full amount, whether or not it makes financial sense for them?

    We have had a long and difficult journey with our son, the oldest of three. As a musician he set his sights high--Berklee College of Music, Belmont University, University of North Texas music program. He got enough merit aid at UNT to make it possible, but got nervous on his audition and ended up on the waiting list, too far down to hope for a spot in his program. Next he set his sights on Belmont for their music program, but the 10k scholarship they offered only scratched the surface of an estimated first-year total cost of $48,000. Same with Berklee--10k in scholarships but nearly $70k per year to attend, not to mention air travel and the logistics of going a thousand miles from home. The "aid' packages from both Berklee and Belmont CONGRATULATED us on the offers of Plus loans to cover the full amount not covered by scholarship or Stafford loans. I'm with some of the other commenters here; the opportunity to go head over heels into debt slavery is nothing to celebrate. An "award" should be just that--a gift, not servitude. The way they package loans is deceptive--you assume if an amount is offered, some professional has reviewed your FAFSA and determined that you can pay back that amount--but I knew based on our finances (and two younger children entering college in a few years) that it would be financially crippling to take out that much money and that we would never retire or be able to do anything but service that debt.

    We have always told our kids "in state or equivalent." We let him try at the "dream schools" for music but the offers just weren't enough. It is hard because as parents we do want their dreams to come true, but we also recognize that borrowing $50 or $70k per year for a school whose graduates make on average around $30k per year does not make sense. Sure, he might make it big, and they love to tout their famous alumni, but they fail to mention the many thousands of others who don't end up famous or in arts careers. We've told him that it's not the school that makes you, it's YOU that makes you. We had to make the decision for him to enroll at a quality in-state institution with the best music program in our state/region. Between what we've saved and its reasonable cost, plus him working summers or on campus, we hope to get him through without debt. While we have twinges of doubt and regret about not sending him to one of his more glamorous choices, this is the best decision for our family and an opportunity to teach all 3 of our kids about living within our means and buying what we can afford. Our hope is that when he graduates in a few years, if he decides he wants to run off and try to make it as a musician, he can do so without the cloud of debt hanging over his head--or ours.

    Loans are a necessity for many families, even for state schools, and each family must do what works for them--but the nature of these loans needs to be more transparent when they are offered so people know exactly what they are getting into. As long as people go in with eyes open and borrow only what they can reasonably repay, I see no problem. But those who borrow hundreds of thousands for a big name school when more affordable options exist--and then complain--that I just don't get or sympathize with. There is nothing wrong with obtaining a degree by more affordable means, and in most cases, employers will be looking for skills, not institutional pedigrees. Everyone has to live within their means, and that includes how much they borrow for cars, houses, and college.

    Incidentally, I teach at a community college. They are an excellent start to school and an unfairly maligned way to make college costs more reasonable and avoid crushing debt. They may not be as exciting as living away at a big name school, but they get the job done with small class sizes and cheaper tuition. We have famous alumni, too!
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