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Rookie Mom Seeks Early Advice on Financing College for Twins


Replies to: Rookie Mom Seeks Early Advice on Financing College for Twins

  • ccsouthccsouth Registered User Posts: 205 Junior Member
    @AroundHere Got it! thanks makes sense. Just wanted to make sure if DD doesn't take direct unsubsidized loan fresh year, she could take it in future years if needed.

    Of note if you take the direct unsubsidized loans for 4 years of $27k ($26,712 actually disbursed after origination fees are deducted from each disbursement), on graduation day your loan balance would be $29,708 with the $2,708 interest added back in which is compounding daily.....

    With origination fees added in, the total cost to take out 4 years of unsubsidized direct federal loans is $2,996.42 if paid off on graduation day.
  • ccsouthccsouth Registered User Posts: 205 Junior Member
    @happymomof1 I am reading here https://studentaid.ed.gov/sa/fafsa/next-steps/receive-aid that the school receives the loan disbursement directly and "applies your grant or loan money toward your tuition, fees, and (if you live on campus) room and board. Any money left over is paid to you for other expenses". How does this work in the real world? Does the school allow you to pay your full bill if they also receive a federal direct loan disbursement?
  • AroundHereAroundHere Registered User Posts: 3,590 Senior Member
    @ccsouth The school receives the loan so that the student cannot use it to buy an Xbox if tuition isn't paid. Students get a refund once the college is sure it will be paid.

    I dont get the scenario behind your question. If you have cash in the bank, why not just give some to your kid rather than overpaying the school and making them wait for a refund?
  • ccsouthccsouth Registered User Posts: 205 Junior Member
    exactly my point. How is the scenario in post #61 possible?
  • AroundHereAroundHere Registered User Posts: 3,590 Senior Member
    You get the 5500 freshman loan and you also make the rest of your tuition payment with savings, financial aid, a job, whatever. Then you keep working your job. Instead of taking the salary from the job and paying down the loan, you save it.

    Or you had the 5500 in the bank in the first place, but you got the loan anyway, because you know your money in the bank won't last for four years of college.

    Or you live off campus, so your loan is an overpayment for you to pay for rent. But Aunt Goodie lets you live in a spare bedroom rent free. You can save the cash for future years' tuition payments.

    It all makes sense when you put together the whole four year plan to pay for college. (Assuming you can stick to your budget!)
  • scoutmom2002scoutmom2002 Registered User Posts: 98 Junior Member
    @AroundHere RE Your Post #62...that's why I originally started this post....so assuming each twin will need additional financial aid to cover all 4 yrs of tuition - whether it be only $27K or $50K+...and knowing that I want to pay for all 4 years of college for each twin....and assuming hypothetically that neither twin receives any merit/scholarship aid...what is the best way to obtain the $27K or $50K+ needed to cover all 4 yrs of tuition times two (so $54-100K)??

    If twins get federal direct loans...my plan would still be to pay off that student debt of $54K ($27K each), so wouldn't it be better to use something with better interest rates? Or would one plus of each twin taking a federal direct loan mean that they are building good credit history? That is a big plus in my book too.

    Assuming we end up needing additional funds (after using 529, students savings, fed direct loan and income earnings)...what is the next best option for additional funds? That is where I seek advice - and please...no comments please on if you can't afford it don't go or go to community college. We know that..but I'm willing to sacrifice as my parents did to be able to provide my kids with the college education/experience they want...now if they end up deciding to go to community college that'll be fine too...but I don't want it to be due to lack of funds.

    How many parents have taken either a cash-out refinance, home equity line of credit or home equity loan to help pay for college tuition? We are luckily in a good position to be able to do this. I know the impact on FAFSA if we go this route, but either way, we don't qualify for financial aid due to our salary. So why not go this route? I assume this would be better than a Parent Plus loan, correct?

  • coolguy40coolguy40 Registered User Posts: 1,809 Senior Member
    Unfortunately, there's no cheap way to pay for school unless there's scholarship money. One kid is expensive enough, but twins?? Yikes! :) This is something you want to sit down with a skilled financial adviser about.

    You already have 60k saved up, which is a very good head start. First, the most any student can take out in federal loans is $27k for each sibling. That takes $52k out of the picture and leaves you with roughly $88k left. If you have equity in your house, $88k is a manageable amount of debt. Equity loans typically have the lowest interest rates with the best terms and you can stretch your payments a lot further than most other loans.

    You can give the twins a choice. If they want the full college experience, they have to take out student loans and work to afford the dorms up to $27k a piece. If they go to a community college for 2 years and live at home, they could come out debt free.
  • scoutmom2002scoutmom2002 Registered User Posts: 98 Junior Member
    Does anyone know the answer to this question....assuming the federal student loan is in the student's name, does this go on their credit report? Meaning...payments/payment in full of student debt will give them good credit history? I find this a big plus...whether in the end they pay off the loan or have mom/dad help pay off the loan.
  • AroundHereAroundHere Registered User Posts: 3,590 Senior Member
    Of course it's always better to get something with lower interest rates. The trick is finding such a loan.

    The interest rate on the federal direct loan is currently 4.45 percent. If you qualify for the subsidized version, the government pays the interest until graduation. The one-time fee is 1.066 percent.

    Parent Plus loans are 4.2 percent fee, 6 percent interest. Private college loans are all over the map, but about 5 to 10 percent range, depending on your credit rating. You can also look at the costs of tapping home equity.

    It's pretty easy for high-income parents with good credit reports to beat the Parent PLUS loan. It's generally harder to beat the federal direct student loan.

  • ccsouthccsouth Registered User Posts: 205 Junior Member
    @scoutmom2002 Remember that the $26,712 each kid receives is not what you will pay back on unsubsidized federal loans. If you choose the standard 10 year payment plan you will pay back $46,358 for each kid. The ~$53k looks to cost ~$93k with a 10 year repayment plan.

    You mentioned you could save $500 per month for both kids for college. Just be mindful of when the payments come due for multiple loans if you have ~$500 to spend on across all loan payments.
  • blossomblossom Registered User Posts: 9,072 Senior Member
    The key downside to the HELOC's is that you cannot predict the housing markets.

    I live in a high real estate cost area as well, and I could write a very sad book about what happens when the real estate market tanks. If that were an independent factor you could plan for it. BUT- nobody predicted the recession in 2008 AND the tanking of the housing market. Who would have predicted that they'd be unemployed AND underwater on their mortgage AND have their retirement funds tied up in company stock that plunged in value all in the same month? Nobody, but that describes a lot of people I know in the NY Metro area. In that kind of scenario, you need the equity in your house as your cushion for everything else that life brings.

    Back in ancient times when I lived in the Midwest (reasonable housing prices, very stable employment, low taxes) an auto assembly plant announced that it was closing. I naively thought "this has nothing to do with me, I'm not an autoworker" but my houses value dropped by 20% overnight. HELOC's were just coming on (but folks have used second mortgages for a long time) and boy- there were divorces, personal bankruptcies, adults moving in with grandparents and grandparents moving in with their kids for a bunch of years until things regulated.

    So if you aren't very savvy financially, it would be worth an hour with a financial planner (a fee based planner only, not someone selling you an annuity) to get a handle on what various financing options are actually going to cost you. I know people in their early 70's who cannot retire- even from jobs they loathe- because they used a HELOC for something that seemed like a good idea, then the value of their house dropped, and all of a sudden, there was no selling of the house to finance retirement on a golf course in South Carolina. I'm in a high tax area and various economists have posited that the full impact of the tax cut (eliminating the SALT deduction for example) has not even begun to show up in housing prices. I know my house's value will go down-- just don't know by how much yet.

    So yes- keep it on the table, but don't let anyone on the internet tell you that one financing option is right for you unless you've actually run real numbers.
  • scoutmom2002scoutmom2002 Registered User Posts: 98 Junior Member
    @dygibbs - thanks! That answers my question and gives me a good reason to have each twin obtain federal direct loans for all 4 yrs (regardless of whether they pay it all off or mom/dad helps) and below (from 2nd article) specifically answers my secondary question and will be my plan going forward as I do believe that building a good credit history/score is also important.

    Repaying in School - Repaying student loans on time while in school builds your credit score. The servicer will update your file each time that you make a monthly payment. These regular monthly updates keep you in compliance with the FICO minimum requirements standard. This means you will actually have a valid rating.

    Repaying while in school helps your credit score in three important ways.
    Create a record of on-time payment. Payment history is the number one factor.
    Lower the principal balance. The amount owed is the number two factor.
    Establish an earlier starting point. The length of history is the number three factor.
  • CopperlineX2CopperlineX2 Registered User Posts: 510 Member
    @AroundHere I regret to inform Plus loans are up to 7% interest. Really rotten, but still better than most private loans.
  • happymomof1happymomof1 Registered User Posts: 28,385 Senior Member
    Federal student loans normally cannot be discharged in a bankruptcy, but they will be forgiven in the case of death or severe disability. They also (at present) can be forgiven if the graduate works in certain high need careers and locations for a certain period of time. I don't know what the situation is for PLUS loans forgiveness in case of death or disability. So check that out too.
  • scoutmom2002scoutmom2002 Registered User Posts: 98 Junior Member
    @ccsouth -- yes, I understand that....that's why I'm considering cash-out refinance or HELOC or HEL -- if and when needed. We are in a good position home equity wise and if I did do a cash-out it would be with the caveat of not extending the term..so it would still be paid off before retirement ;-)
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