Student/Parent Loan through State Program - Student Credit

Paying for College
1

Since we’re getting ready to send our third and last “child” off to college, one would expect that I wouldn’t still be learning new things about educational loans, but…

Background: When our oldest went to school, we paid next nothing for his education (COA >$50,000/yr in 2007). He ended up with about $25k in student loans upon graduation, which he paid off in two years. When #2 headed off to school, we (parents) paid and/or borrowed about $6-12k per year (COA > $54,000/yr in 2011). She ended up with about $27k in student loans upon graduation, which are currently in deferment because she’s in a (fully funded, no cost to her) grad program. We’ve since paid off our parent loans.

Current Situation: Because our “family size” keeps getting smaller and our income keeps inching up, we’re going to need to come up with about $20k/per year for #3 (COA > $63,000/yr). Even though this is a big OUCH for us, I still feel it’s worth it. The school is giving her about $39k in need-based grant aid and she will take the standard student loans (which surprisingly include a Perkins and a subsidized loan. yay!) We’ll definitely need to pay part of the tuition bill through loans. I’ve been researching private loans which I’ve never done before because I’ve been reading about how bad the Parent PLUS loan is. (While simple to get, I always resented having to pay that nasty 4% origination fee and >7% interest!)

The Question: It turns out that our state has a great program where we can get a parent loan @5.75% (no origination fee) or a student loan (with co-signer) @4.24% (no origination fee). I’m debating between the two. We intend that the loan will be ours (parents), but I’m thinking that if we took the student loan this year we’d get it at a lower rate and could help build credit for our daughter. We would not want to do this every year because we don’t want her to have trouble with too high a debt to income ratio after graduation.

Any thoughts on this?

2

won’t your daughter already have Stafford & Perkins loans?
Will she have work study/summer earnings?
If you have to borrow to pay EFC, will this school still be affordable next year? And the next, and the next, and the next?
Did you pay the EFC for your other kids?
Is the reason that you can’t pay this daughters EFC, because you are paying for another daughters wedding?
I think college money & party money should be separate.
But thats just what worked for us.

3

We’re just getting through life’s hurdles as they come up. There are no separate pools of funds for education or parties or vacations or food or weddings or grandchildren, or anything. We only have a loan for our home, our very modest used car, and soon college. It’s a priority to us, but of course we have to be careful about how much we borrow so we keep our exceptional credit rating and don’t get buried alive.

4

Your D might want to elope then.
:slight_smile:
It’s very romantic!
There have been many threads in the parents cafe re : weddings.
My daughter eloped last year & had a party 5 mo later.

5

Even though that student loan is tempting because of the lower interest rate, go for the parent loan if you must borrow the money. That way your kid will never be held responsible for the debt, just the parents - which I understand it your intent.

It looks like you have reasonable cashflow because you have been able to pay down your parent loans so far. But I do have to ask whether your kids know about the levels of debt that you have been taking on for their educations. Be straight with them about this. Down the line, there might be other things that really aren’t affordable - such as the wedding mentioned above, or your retirement. Your kids need to know the level of sacrifice you have made for them.