My parents want me to take out about $59,000 in loans with Wells Fargo each year to fund my undergrad education (co-signed obviously).
You might think I’m crazy and should have gone to a more affordable school, but my parents’ joined income is pretty high (300,000+) and we had many discussions about finances and they have always been willing to pay for my education.
However, they want me to take out as much money as I can because “why not” since I won’t have to pay interest (about 3% variable) until after I graduate college. They are not not expecting me to pay any of it back. Also, I plan to major in CS and some big employers (Facebook, Google, etc) will pay your student loans upon employment.
I am hesitant to do this, since even though it won’t be my responsibility to pay it back, (I’m SO grateful for this!) it’s still a lot of debt to get into before I even start working.
What does everyone think? Has anyone done this and had it backfire/work well for them? What are some advantages/disadvantages of deferring payment?
If you take the loans in your name, and they co-sign, they are YOUR loans - your credit report, your reputation. It will limit your ability to get other credit for a car, home, personal need. A 3% variable rate can rise to 5 or 6% before you are even out of school if the economy turns that way. The payments may not start until you graduate, but the interest will be building up.
I think you know the answer to your question. Not a good idea.
So they are willing to make all principal and nondectible interest payments and file the required gift tax returns if each pays more than $14k per year?
I think it is very risky. What if your parents will not have funds available to pay off your loans after graduation? Bad investment, life changes, anything can happen. I am not familiar with the concept of big employers paying off students loans.
@Madison85 I think they want to co-sign becuase they are hoping the loans will get paid by my future employer, maybe? They will make all interest payments. I’m not against taking out any loans, but think this massive amount may be excessive. What are some of the negative impacts taking out this amount of loans can have in my future financial life?
Thinking that taking out large loans at 3% because the parents know they can invest and earn a higher rate of return elsewhere motivates a lot of financial decisions in H’s family. Hasn’t turned out well for them overall. I agree with Madison85 – the parents could just take out a home equity loan or find another way to get the money themselves without putting the student at risk.
$60k unsecured loans aren’t available unless they are student loans, and unsecured loans usually have a higher interest rate than the 3% OP thinks she can get.
I don’t know of any employers paying $240k of loans off. A few, very few, offer a taxable benefit of $2000 or so per year. Some of those same employers will pull a credit report and may question hiring an employee with $240,000 of personal debt. Why do you think employers pull credit reports? Employees with high debt are often not the best employees as they are under a lot of pressure. You can’t really say at the job interview “Well, my parents just wanted to take advantage of the government and invest the money. We didn’t really need it.”
Your future employer is NOT going to pay off those loans…not even some of them.
I agree that some employers won’t even hire you with that much debt in your name became you’d be a security risk.
I think this is risky…what if (sadly) the high earner parent gets ill or dies? what if your parents were to split up? I could see this debt becoming a huge problem in either case.
While other new grads will be striking out an independent existence, you’ll have a quarter of a million dollars debt dangling over your head and will be beholden to your parents BIG TIME after graduation, subject to the whims of their pleasure.
If your parents aren’t willing to pay now, then best to minimize the net cost. (Think merit aid)
No employer is going to pay off a student loan of that size.
While your parents may have nothing but good intentions , I would be hesitant to take out that size loan. A lot can happen in 4-6 years from now. I work healthcare. Even a moderately severe health crisis can result in huge healthcare bills and periods of inability to work. Hopefully , that is not something that you and your family will not have to face, but I see it everyday in my line if work.
I agree that employers will most likely not pay for that level of student loan debt. It may make you less competitive for the job that you are applying for. It is difficult to predict what the market holds in 4-6 years in the future . Education reimbursement plans are some of the first incentives to go.
If there’s any doubt that you’d be able to assume that much debt on your own if you had to, I’d wouldn’t feel comfortable doing it.
How will you qualify to be a co-signer? Do you have a trust fund? If so, why not use it for college? The interest rates can climb and no guarantee the money invested will earn more than the interest accruing on loans. And if your family has that income level, the interest on loans (at least the federal ones) will not be deferred. Bad idea. If your parents think it’s a good idea for THEIR finances, let them take out the loans. Personally, that degree of debt would be a big NO. Think about it- it’s like a mortgage on a house.
I thought students can only take out a small amount in their name? I read that all the time in posts here… What is it $2000 in students name or something? OP, do you have the details on the specific loans? Are they really below 3%?
@jeepgirl because the parents think they can keep it invested and earn more than the interest rate. Sounds like the parents will pay it off upon graduation.
If the loans are in the parents name (or cosigned) then how is it a gift requiring gift tax if paid off at graduation? If they pay 60k per year for college as he goes along, then THATS not a gift tax event.
OP, are your parents financial professionals? If their day job is in finance, they may have a decent investment process figured out, and I’d give them the benefit of the doubt ( especially if they are FOR SURE on the hook for these loans at graduation), if not, I wouldn’t take so many. Tell them you are worried about having so much as credit when you graduate. Can they please pay half now.