The CoA for the school my D will be going to looks like this:
Cost of Attendance
Tuition and Fees $13,671.00
Room and Board $11,946.00
Books and Supplies $1,400.00
Travel $2,500.00
Miscellaneous $2,600.00
Total: $32,117.00
Let’s say for sake of argument she has a scholarship that covers the tuition and room and board, leaving their estimates of 1400+2500+2600=6500 left. My understanding is that $6500 is the max I’d be allowed to get, is that correct?
To be safe, I do a 6500 parent PLUS loan and turns out all that stuff was cheaper than they estimated and only came to $3000… what do/can you do with the remaining 3500? Can it just be used as a payment back to the loan, can it be used for “anything”, can I just save it and use it for next year’s bill or a study-abroad or some other education-related expense for her?
You can use it for anything. You can pay it back to this loan, but if you are going to need to take anther PLUS loan the next year, I’d just save it and reduce the amount you need to borrow the next time. There is an origination fee for the Plus loan, so you don’t want to pay that again.
The loan will be disbursed by term (semester, quarter), so if you find you didn’t use all the fund from the first term, use it for the second and don’t borrow more.
The student’s loan ($5500 as a freshman) should be taken first. It will have a lower interest rate and origination fee.
In addition, if part of your D’s loan is subsidized ($3000), there will be no interest on this part of the loan as long as she is in school.
If tuition, room and board are covered by scholarships, your D should also be working a summer job to help offset some of the miscellaneous expenses. She can probably earn $3k, leaving even less to be borrowed
I’d only “save” the money if you (and your spouse) are realistically the type that can ignore the pull of several thousand dollars sitting in an account rather than eating it up $100 at a time (etc)…
To be safe, I do a 6500 parent PLUS loan and turns out all that stuff was cheaper than they estimated and only came to $3000… what do/can you do with the remaining 3500? Can it just be used as a payment back to the loan, can it be used for “anything”, can I just save it and use it for next year’s bill or a study-abroad or some other education-related expense for her?
Here is the plain disclosure language relating to your question:
Within 120 days of the date the school disbursed your loan money (by crediting the loan money to your or your dependent student’s account at the school, by paying it directly to you, or both), you may return all or part of your loan to us. Contact the Direct Loan Servicing Center for guidance on how and where to return your loan money. You do not have to pay interest or the loan fee on the part of your loan that you return within 120 days of the date that part of your loan is disbursed. If you received an up-front interest rebate on your loan, the rebate does not apply to the part of your loan that you return. Your loan will be adjusted to eliminate any interest, loan fee, and rebate amount that applies to the amount of the loan that you return.
If she has a scholarship that covers all direct billed costs like tuition, fees, room and board, then why would you borrow any Parent Plus loan at all?
Why wouldn’t the student take their federal direct loan of up to $5,500 to cover books, transportation, personal expenses, if needed?
The student direct loan has lower interest rate and origination fee.
You could always pay the interest on it, and then pay it off once she graduates.
Thanks @kelsmom, that’s the info I was looking for.
While I appreciate the financial advice in the other replies (she should get a job, don’t save the extra if you’re going to dip into it, etc), she doesn’t quite have the full tuition+R&B covered (most of it) but it was easier as an example to just go with those other costs, using round numbers. I’ll have to borrow, not much, but some, and since COA’s have some guestimated numbers in there I wasn’t sure what would happen if you borrow more than you spend.
I was in that situation with my son – I borrowed $9000 in year #1 but hadn’t really factored in the reduced costs of not having my son at home. (Never quite realized how much the kid ate until he moved away; another big savings was that I dropped him from the car insurance). So in hindsight I could have gotten away with borrowing half – and I just paid it forward and didn’t borrow anything at all in year #2. With daughter I was somewhat more sophisticated when it came to planning-- I borrowed all 4 years, but was better able to project costs, so my year-to-year borrowing was far more moderate.
I’d note that I didn’t pay for most of my kids’ incidentals-- I just paid tuition & room & board and some travel costs, and expected my kids to be responsible for the rest, to be paid from summer and work-study earnings. They did fine… they were always appreciative of a care package from home or gift cards for special occasions,but never needed me to supplement.
In your case, your are saying that your daughter has a full scholarship for room & board. So honestly, I don’t think you should be looking at a PLUS loan at all – to start with, it would be better for your daughter to take direct loans for those funds and she should be able to also contribute through summer earnings. To qualify for a PLUS loan you would need to have good credit-- so to the extent that you are picking up expenses, when you factor in the higher interest on PLUS loans and the 4.3% origination fee, you might just do better to use a regular credit card for things like airfare-- because then you would only be charging what was needed at the time it was needed. That is, if you borrow $6500 with a PLUS loan, you’ve just paid $275 for the privilege of borrowing more money than you need, with a 7% interest rate – so that cost you $7350 in the first year. But if instead, you were simply charging airfare and stuff you buy (text books, dorm supplies) to credit cards – and you ran up $3000 in credit card costs at an average APR of 18%- that would be a max of $540 in credit card interest over the first year (compared to the $750 you would pay in interest and origination fees on the PLUS loan) – and actually even less because your credit card interest wouldn’t start to run until the charge was made. Plus you could even shave a little more off if you used a cash back credit card, or signed up for a new card with 0% APR for the first year. Of course, the more disciplined you are about making payments, the better off you are.
So, here’s the TL;DR: Don’t use a parent PLUS loan to cover incidentals such as books & supplies, travel and misc. They should only be used to help with fixed costs like tuition & room & board.
In your case you will want to find out if there are specific, mandatory fees that are not covered by the scholarship – the one big ticket costs you might not have factored in would be required student health insuance.
I think Calmom’s suggestion is an excellent one- with the added psychological component that using a card means thinking each and every time about what you are buying- is this textbook cheaper online than in the campus bookstore? Possibly. If I comparison shop for this flight can I shave $50 off the ticket? Probably-- and if my kid can fly a day earlier or later, I can probably save even more.
Etc. Once you’ve got the loan, you don’t really have the incentives to keep up with your typical frugal habits- the money is there. But you are paying a penalty for that luxury. Using a credit card for these incidental purchases will require you asking for each and every charge, “do I need this, can my kid live without it, is there a cheaper alternative”.
I know parents who are maxed out on loans who thought nothing about dropping $500 at Bed Bath every August. For my dollar- the kids can “shop” in my linen closet for what they need. At the end of four years- it all got hauled off to Goodwill anyway. There is too much to buy if you’ve got the money already in your account!