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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

  • musicmom38musicmom38 Registered User Posts: 15 Junior Member
    We're not doing a PLUS loan, I've read too much about it and it scares the hell out of me. We're using our 529 savings until it runs out (which will be sooner rather than later) and then most likely going with Sallie Mae or Discover- our son will take the loan in his name and we will co-sign.
  • exlibris97exlibris97 Registered User Posts: 1,016 Senior Member
    @lastone03 @overbearingmom I cannot speak for all "no loans" colleges but at the two I am very familiar with--Harvard and Columbia--you can still get approved for loans to cover your EFC. And they will also approve you for loans if you calculate your costs higher than their official COA. Many students and families do take out loans when attending these colleges. They just aren't part of your FA award.
  • privatebankerprivatebanker Registered User Posts: 1,841 Senior Member
    edited July 27
    I agree with all parents being credit savvy and conscious of the ramifications over overextending yourselves.

    But the concept of the bank (which isn’t a machine , it’s a bunch of other human beings as well) being somehow evil is strange to me.

    We make a contract for anything you would expect both parties to abide. And if they don’t usually some form of remedy is available.

    If you lend one of your friends 10000 dollars and they dont pay you back as promised. How would you feel.

    Now if it was someone you didn’t know what would they have to do or promise for you to loan them 10000 dollars. Would you want it writing. Would you want to be able to go to a judge if they blew off paying you back.

    It’s not like the bank is chasing you down the road with a bag of money. Begging you to take it.

  • JBSeattleJBSeattle Registered User Posts: 502 Member
    Well, I am a banker and the following is how I have presented college costs to my daughter:
    Equivalent of $15k per year in college account, I can pay $12k per year and if she chooses to work (10 hrs per week during school year and 30 during summer) that would be another $10k. So total budget of $37k per year. Her list has two tougher schools (Occidental and Tulane) where merit is very unlikely plus aid will not be great as our FAFSA efc is $55kish. Many of the schools she is applying to will need scholarships to work but she has a decent chance, a few (SD st and Cal Poly) will be fine if she works and two schools should be under my budget (I will give her $ at graduation for the difference if she is under budget). I want her to have “skin in the game” while still helping out a lot.
  • JBSeattleJBSeattle Registered User Posts: 502 Member
    By the way, my wife and I have decided we are not allowing her to take any student loans. We don’t feel it is necessary in our situation.
  • DRfollowerDRfollower Registered User Posts: 4 New Member
    What is the difference?
  • JBSeattleJBSeattle Registered User Posts: 502 Member
    Probably $16k given no merit aid (She could get some).
  • mountain88mountain88 Registered User Posts: 16 Junior Member
    Thanks for all the info on PLUS loans.
  • prouddad2020prouddad2020 Registered User Posts: 12 New Member
    I agree with everyone's input about loans in general and the Plus loans. It's not the lender's fault. we are the ones signing the agreements.

    We had to make similar decisions a couple of years ago. My S had to decide between a top 5 engineering college that costs $70k per year or the best public university in our state which would cost $20k per year (mostly room and board). Is the extra $50k per year worth being educated at one of the top colleges in the country?

    The simple way to look at it is to do some quick math on compensation after college. To recover $200k for the extra college expenses over a 10 year period of time at a 4% rate is about $24k per year. Will he make $24k per year more in salary (after taxes!!) graduating from a top school in engineering?

    I am not sure and truthfully do not think so.

    He is a junior now at the expensive option - so ask me in 11 years. :)

    We are fortunate to be able to pay without taking loans. I did get loans the first year while some extra income was not coming in. But I was very scared of the loans. We are all paid up now, no loan balances and keeping up.

    If I could not have afforded the more expensive option, I would have told my son the in-state option was his only option. We must be truthful with our kids when it comes to money. I know it is hard.
  • brokeparent1970brokeparent1970 Registered User Posts: 13 New Member
    Looking at the actual cost of school, including the interest on loans, is very sobering. The price ($260,000 for four years at NYU) is staggering to look at. But if you factor in the 7% for a PLUS loan, that's over $3,000/month for ten years and over $103,000 in interest. It's really hard to imagine the NYU degree being worth that much money. My son is an excellent student and would get merit money at other schools but NYU doesn't offer any and that's where he wants to go.

    But as said by other people here, I don't blame the banks. They are making this dream possible for people and have a right to get paid for doing so.
  • calmomcalmom Registered User Posts: 20,044 Senior Member
    But again, it really doesn't make sense for anyone to use PLUS loans to finance the full cost of attendance. The responsible borrowers are using it to fill in the gap between what can be paid from current income and college savings and total cost. So if a parent can afford $30k a year but the college costs $45k a year, then the parent pays what they can afford and borrows the balance. After 4 years that parent has $60k in loan....not $180k.

    It's unfortunate that the system allows less sophisticated borrowers to take on more than they can handle.

    So for a kid like your son who wants to go to NYU the question is what's the gap you need to cover, not total COA. NYU does offer merit money with a need component; in fact all of their aid is essentially merit based, up to full tuition, though it does not come close to meeting need for most students. So no, you don't have to send your son to NYU if it is beyond your ability to pay....but you can include a certain level of borrowing in determining your budget.
  • lastone03lastone03 Registered User Posts: 796 Member
    The best way to pay for college should be to pay from savings and cash flow first, followed by direct student loans and finally parent plus loans (in that order).
  • Nurse001Nurse001 Registered User Posts: 337 Member
    I was buying a car and talking with the finance manager and we got on the subject of student loans. He took out $300,000 for 2 kids in Medical school!!! I almost fell off my chair!!!
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