I thought it was the OP who would be taking out the loan with the parents as cosigners, not the other way around. Either way it’s a terrible idea, but the OP says
You said your parents like the idea of deferring payments, but the INTEREST on the loans will not be deferred, it will ne growing the whole time, so instead of paying $240,000 they will be paying off ALOT MORE.
The parents said they would pay the interest as they went.
But really…that just makes the plan even more finacially ridiculous. They will be paying the interest…great.
Then take a Parent Plus loan…and pay THAT interest which is just a tad more.
OR refinance the family home. Home mortgage rates are low.
I haven’t read the entire thread. I have discovered that the disadvantage to the Parent Plus loan is the high origination fee - over 4% of the loan is charged!
Just today, I applied for a fairly large home equity line of credit, through a local credit union. 4% interest rate. Total cost: $200, for the “desktop appraisal.” The loan officer said our credit looks good, so we should have access to the funds in 2 weeks.
She said that once we are done borrowing for college, we can convert the loan to a fixed interest, home equity loan.
We are hoping our business continues to do well so we don’t have to borrow much, but it gives me peace of mind knowing the funds are there if we need them.
I had also wondered if your parents thought they could invest the loan $ and make significantly more than the interest rate they would be paying on the private loan (here is a list of possible loans, and the privates they reference range from just under 2% to over 7%) http://www.thesimpledollar.com/best-student-loans/ I agree with @fallenchemist that it isn’t worth the risk to maybe, MAYBE make a percent or two on the investment of the loan $). Back when I was in grad school, interest rates were obscenely high (14%) so we would all take our state funded or federal loans and stick them in a money market account. But those days are gone.
Your father’s claim that he wants to protect his cashflow makes NO sense. How does your co-signing, especially if he really plans to repay the loan (since you presumably do not have an income) affect that in any way? Does he plan to stick you with the bill? You can easily work out a way to contribute to the cost of your education without having to cosign on THEIR loan. Why now is he putting you over a barrel like this?
As an aside, Cal Tech is a fabulous school, and congratulations. You will surely have lots of great employment options upon graduation. But, if, for instance, you wanted to work for a start-up rather than one of the big guns, you would be unlikely to be able to do so if saddled with a huge loan. Both my sons happen to work for one of those big gun tech companies, and I have never heard either of them mention anything about assistance with college loan repayment (though to be fair, they have no loans). One son was able to get married and buy a house in a very expensive housing market. He would not have been able to do that if saddled with huge college loan debt. Think carefully about your future.
I also assume you are over 18- otherwise this is a moot point. Can’t sign as a minor.
I don’t think OP can take out the 240k now. Too risky for the lender. So even if she got 60k this year, the chances her credit (even with her parents as co-signers) would allow her a loan for the subsequent years, is very small.
Back to employers paying off: not only are the payback amounts comparatively small, WSJ says a number of these companies are also setting the own caps for total amounts they pay off annually. OP could be the umpteenth employee applying after working through the waiting period, and be denied the benefit. Or the program could end. Or be morphed into management level only.
Don’t forget that when a parent loan is dismissed because of death, a 1099-R is issued for the amount and generally taxed as ordinary income.
A quick clarification- since it seems to crop up at least every few weeks on CC-
Filing a gift tax return does NOT cost any money. Whichever poster noted that there are expenses involved in filing a gift tax return is posting erroneous advice. The actual form takes less than 10 minutes to complete. There is no tax due when it is filed- not by the giver, nor the recipient. You do not need an accountant- if you read English, you can fill out the form. Plus the postage stamp to mail it in.
Down the road… and assuming that the givers have a very sizeable estate- the gift tax returns would get tallied up, and there might be estate taxes due as a result of gifts given while the decedent was alive. Might.
Most people do not have to worry about gift taxes. And a married couple can each give 14K per year to anyone they wish. So a parent can give their kid 14K on December 29th 2016, 14K a few days later on January 1, and the spouse does the same- and the parents have just given the kid 56K in a three day period with NO FORM required, no tax consequences whatsoever, it is perfectly legal and does not cost anything (except of course- the 56K). Not even a postage stamp.
OP- carry on. But wanted to clarify this for everyone else since there is so much bad information posted on CC about how to avoid the gift tax- as if this is a problem which most people face. Which they don’t.
If your parents want to protect their cash flow to remodel their home, then they can take a HELOC and not involve you at all.
I truly think that they believe some employer is going to be so moved by a Cal Tech grad that they’ll offer to pay off the loans. It won’t happen.
I think that if you say that you’re going to take a gap year and reapply, then they’ll just pay or do their OWN borrowing.
[QUOTE=""]
If you agree to this and especially if one parent is the high earner, I would ask that they purchase life insurance with you as the beneficiary up to the amount of the debt (this would be in addition to anything they already have set aside for you). I do not know whether if that parent was disabled that the insurance would kick in ...it may depend if it is whole or term...that's not my area but should be investigated.
[/QUOTE]
And the life insurance would have to increase each year as the loans increase…or take out one big $260k insurance policy
Maybe this situation is a bit similar? I retired quite early after having lived overseas for most of my working career. I lived/live below my means and was fortunate to save a significant chunk of money when I returned to the US. When we went to purchase a home, I seriously considered taking a loan but since I was no longer working banks would not easily make this loan (even though I had 10x the purchase price in cash/investments, so I just paid for the house). There were quite a few reasons I considered doing this and I might consider a loan as a possibility when the time comes for my kid to go to college depending on various things.
I would not have a problem with the kid questioning it and asking questions about it, in fact I would be happy to explain it. I am surprised everyone thinks the parents are so clearly incorrect.
I said to consider the cost of filing (which may be zero plus postage if self-prepared or greater if not self-prepared). My advice to consider the cost of filing isn’t erroneous.
Also, we don’t know if the OP’s parents have each gifted over $5.43 million to date, so we can’t say for sure that there would be no gift tax due.
Will you ask your KIDS to take the college loans?
By asking this kid to cosign, these parents are really asking their kid to take the loans.
Sorry, but I don’t agree with their stance…and especially since it was the PARENTS who all along said they would pay for college for this student. According to the student, it was only when a family friend dais that an employer was paying off college loans that the game changed.
FACT…employers are not paying off private loans families take to fund college. It’s just not happening. The parents need to understand this.
And the parents are certain,y free to take loans if they want to…without their kid consigning.
I don’t think anyone thinks the parents are incorrect. They are trying to share this risk of their investment strategy with their child, and it is correct for the child to question it and suggest other options.
OP, I’m curious about your college process - on 12/10/15 you posted that you had been accepted ED at Cornell for the CofE - ?
Post #3679
http://talk.collegeconfidential.com/discussion/comment/19052915/#Comment_19052915
http://talk.collegeconfidential.com/discussion/comment/19758211/#Comment_19758211
Post #5 of this thread is where the OP says Caltech was the choice.
@thumper1 Pure speculation but I think it is quite possible the parents do not see the daughter as taking risk at all as they fully intend to pay for it when the time comes or situation dictates. If their estate is much higher than the loan value then that could explain why they might feel this way?
@CheddarcheeseMN I think it is also correct for the child to question it and understand it and suggest other options, but she should understand they might disagree and say this is our final position. Then it is up to her to decide where to go based on if she feels her parents are trying to control her or have some other nefarious plot going on.
If my dad were to have told me to take a loan for my college and he said he was going to pay it all in X years I would not have questioned it unless I felt it was not worth the money. If I felt it was not worth the money I would not want him to pay for it at all.
Not related in any way. Medical issues I would not like to discuss in public are involved. PM me if you really need to know.
Perhaps it is hopeless for you to take on this topic with your father. Instead, what if you and he both sat down with a Certified Financial Planner or someone similar at the bank or elsewhere who could take all the information and demonstrate on paper why this is not a reasonable, profitable, or risk-acceptable (to you) idea. Maybe seeing his scenario spread sheeted out versus the more ordinary pathways, accompanied by risk commentary, would be the more convincing way to go.
This is really a shame. You got into one of the most prestigious and competitive (for admission) universities in the world AND your family can afford it, but your father seems intent on screwing it up for you with side concerns that are not really significant or real, as far as I can tell. I hate to speculate he is hiding something, but this behavior makes no sense to me. I sure hope you can work it all out without having to forego Cal Tech, but what he is asking you to do, not to put too fine a point on it, is totally and completely nuts and very dangerous for you.
Yelling? He sounds desperate, or as if he is panicking. Is there something about the family finances that he isn’t telling you?
Do you have any siblings?
@maria93101 Just please don’t sign yet - until you get all the info.
My parents asked me to game the system too - 25 years ago (they had me take out a small student loan that they offered to pay off when I graduated- so I could have skin in the game, and they get free interest for 4 years). But that was for a total $6K, not $250K. As others have said, they just parked the money in a money market and paid off the bill when I graduated. But it was ZERO interest until I graduated, so that means it was ZERO interest, period, since they paid it right off. And they were earning 8% in a CD, not the piddly 1% you get now.
This does not make financial sense and is not worth the risk.