Quick college financing question for those who probably know more than I do!

[pjlla]

DD is finishing her Junior year at a private college and DS will start in the fall (still undecided, but will probably also be a private school). So far, thanks to some good planning, good luck, and HARD work on everyone's part, we have managed to pay OUR portion of her education in CASH to date (no loans, no credit cards). But honestly, with having TWO payments next year, I cannot see how that will continue. So if we DO end up having to take the step of finding another way for us to pay the PARENT portions of the tuition, which is preferable.... a HELOC, a straight home equity loan, refinancing the home and taking out equity, or some other sort of tuition/personal loan? Which would effect FAFSA in the most favorable way for us, going forward?

FWIW, we have 8 years left on a 30 year mortgage, little/no other debt (no outstanding credit cards, no car payments, no other loans). Kids both do/will have student loans and work study.

Just don't want to do a HELOC and find a year later that FAFSA would have worked more in our favor if it had been a personal loan, or what have you??..........P

 

[TheRustyScupper]

1) I would NEVER take out kids', grandkids' or great-grandkids' tuition loans.
2) Make THEM take out the loan(s).
3) You can make the payments if you wish.
4) This way, if they would default or drop-out, you are not stuck with the payments or bad credit.
5) Plus, when YOU pay, it can disqualify the student from loans or grants.

NOTE: I am the scholarship Administrator for our local Kiwanis group. When we issue scholarships, we are very careful how we do it, so it does not influence other scholarships-loans-grants to the student.

 

[rockawaybeachgirl]

1) I would NEVER take out kids', grandkids' or great-grandkids' tuition loans.
2) Make THEM take out the loan(s).
3) You can make the payments if you wish.
4) This way, if they would default or drop-out, you are not stuck with the payments or bad credit.
5) Plus, when YOU pay, it can disqualify the student from loans or grants.

NOTE: I am the scholarship Administrator for our local Kiwanis group. When we issue scholarships, we are very careful how we do it, so it does not influence other scholarships-loans-grants to the student.

Just to be clear, the STUDENT ALONE can only take out a loan of $5500 max in freshman year (it increases slightly each year, up to an aggregate max amount of $27k). Anything above that at least has to be co-signed by an adult. If co-signed, and something happens to the student, they become fully the responsibility of the other party.

Generally speaking (huge YMMV), HELOCs and Home Equity loans are preferable to private loans or Parent Plus loans for several reasons.

A great site is college confidential - check out the financial aid section of the forums.

 

[redsonja76]

I don't understand why the student can only take our $5500, when tuition is far greater than that. When I went to college I took $10,000 loans per semester (tuition was $8000/sem and the other $2000 covered other expenses). With our daughter she is going to community college for the first two years living at home and we are paying cash. For the second two years she will take student loans and we will pay them back because the interest rate on student loans is better than parent.

 

[tvguy]

Just to be clear, the STUDENT ALONE can only take out a loan of $5500 max in freshman year (it increases slightly each year, up to an aggregate max amount of $27k). Anything above that at least has to be co-signed by an adult. If co-signed, and something happens to the student, they become fully the responsibility of the other party.

Generally speaking (huge YMMV), HELOCs and Home Equity loans are preferable to private loans or Parent Plus loans for several reasons.

A great site is college confidential - check out the financial aid section of the forums.

Under what circumstances would a HELOC or home equity loan be preferable to a Parent Plus Loan? Has something changed? When we crunched the numbers with our CPA and Financial Advisor 11 years ago the Parent Plus loan had the edge.
We saved for 18 years, and also managed to get our house paid off before our oldest hit college. That made a nice chunk of our monthly take home pay available for tuition. We didn't take out a loan until his Junior year. But he went to a private college. Our second child is 4 years younger, and she went to a State University, and what had been the house payment each month was enough to cover all her costs and the payment on the oldest one's Parent Plus Loan.

 

[tvguy]

I don't understand why the student can only take our $5500, when tuition is far greater than that. When I went to college I took $10,000 loans per semester (tuition was $8000/sem and the other $2000 covered other expenses). With our daughter she is going to community college for the first two years living at home and we are paying cash. For the second two years she will take student loans and we will pay them back because the interest rate on student loans is better than parent.

I always thought $5,500 was amazingly high given that those are unsecured loans being given to people who often have little or no income.

 

[tvguy]

1) I would NEVER take out kids', grandkids' or great-grandkids' tuition loans.
2) Make THEM take out the loan(s).
3) You can make the payments if you wish.
4) This way, if they would default or drop-out, you are not stuck with the payments or bad credit.
5) Plus, when YOU pay, it can disqualify the student from loans or grants.

NOTE: I am the scholarship Administrator for our local Kiwanis group. When we issue scholarships, we are very careful how we do it, so it does not influence other scholarships-loans-grants to the student.

There have been discussions here in the past about parents and funding and opinions are wildly divided. I think Kiwanis here expects all the students they consider for scholarships, loans and grants expects the applicants to have considered all financial options, including parent loans before they make an award.

 

[rockawaybeachgirl]

Under what circumstances would a HELOC or home equity loan be preferable to a Parent Plus Loan? Has something changed? When we crunched the numbers with our CPA and Financial Advisor 11 years ago the Parent Plus loan had the edge.
We saved for 18 years, and also managed to get our house paid off before our oldest hit college. That made a nice chunk of our monthly take home pay available for tuition. We didn't take out a loan until his Junior year. But he went to a private college. Our second child is 4 years younger, and she went to a State University, and what had been the house payment each month was enough to cover all her costs and the payment on the oldest one's Parent Plus Loan.

Again I said YMMV but a couple of points:

1. Current rate on parent plus is 7.9 . In today's market a heloc would generally be much lower. That could have been different 11 years ago.

2. Parent plus not discharge able in bankruptcy

3. Social security benefits can be garnished to pay back PP

4. Interest in HELOC is generally tax deductible.

As to the question about the limits being 'low' ( I agree with TV guy that they're not), the wise guy answer is 'that's what the govt has decided. The underlying answer is its an unsecured loan given , potentiall, to someone who literally just turned 18/19 etc. most kids that idea have no idea what they are undertaking financially. NYU costs $70k a year. Do we really want teenagers walking around with 6 figure debt with no assured means of being able to pay it off?

 

[jkelly86]

As an aside, having two kids in college at the same time should work to your advantage because your annual EFC (expected family contribution) should stay approximately the same as last year.

 

[tvguy]

Again I said YMMV but a couple of points:

1. Current rate on parent plus is 7.9 . In today's market a heloc would generally be much lower. That could have been different 11 years ago.

2. Parent plus not discharge able in bankruptcy

3. Social security benefits can be garnished to pay back PP

4. Interest in HELOC is generally tax deductible.

As to the question about the limits being 'low' ( I agree with TV guy that they're not), the wise guy answer is 'that's what the govt has decided. The underlying answer is its an unsecured loan given , potentiall, to someone who literally just turned 18/19 etc. most kids that idea have no idea what they are undertaking financially. NYU costs $70k a year. Do we really want teenagers walking around with 6 figure debt with no assured means of being able to pay it off?

There was some other tax consideration that I don't recall that tipped things in favor of a Parent loan.
I did laugh, I have never considered defaulting on a loan, when selecting a loan. But I am at a point in my life that I hope to never have to get a loan again for anything.

 

[supersnoop]

Student loans cannot be discharged in bankruptcy, so defaulting doesn't really make a difference. They follow you until you die.

 

[sherchat]

Don't forget, having 2 in college will help with the amount you owe out of pocket. When my 2nd child started college, 3 years after my 1st, I was worried until I did the fafsa's and it wasn't as bad as we were expecting.

 

[pjlla]

Wow.... thanks SO MUCH for all of the great feedback! It is interesting for you all to be mentioning things that I didn't even consider.

FWIW, here's a bit more about our current situation. The amount we pay for DD's education currently is about $20-24K a year... and I'll be honest and say that is really maxing out our current situation. Like I said, we have managed to pay it, in cash, for 3 years now and I am super proud of that... and we can probably manage that for another year for HER.... but the college financial aid packages that DS has received so far is suggesting that we (the parents) are going to be responsible for anywhere from $30-40K per year for HIM!! YOWZA!! NO WAY!

By sheer coincidence, yesterday after I posted this DS got his acceptance into one of his top two choices.... and while I am super excited for him, it breaks my heart to have to tell him that unless we can get them to change his financial aid packet and offer him a LOT MORE in terms of grants and scholarships, that school will NOT be happening. We still haven't heard from his #1 choice (it is a reach, IMHO) and while it is an expensive private school, it isn't quite as expensive as the one he heard from yesterday. If he gets into his #1 choice, I will move heaven and earth to make it happen for him..... but not at the expense of my mental health or my DH's future retirement.

Thanks again!! Your advise and suggestions are truly appreciated!................P

 

[barkley]

NOTE: I am the scholarship Administrator for our local Kiwanis group. When we issue scholarships, we are very careful how we do it, so it does not influence other scholarships-loans-grants to the student.

if you don't mind sharing-how does your Kiwanis group manage to do this? in our experience/the experiences of other students/parents we know-every individual scholarship a student is awarded influences federally backed loans at a minimum, and to some extent other grants and scholarships-

(this is the standard information we/others have always been provided by the public and private colleges and universities our kids attend)
"some forms of need-based financial aid are reduced when a student wins a scholarship. these include federal campus-based aid, such as federal work-study, the supplemental educational opportunity grant and the perkins loan, as well as the subsidized stafford loan. colleges can also reduce their own grants and other financial aid funds".

the way we see it happen is by virtue of colleges being the ones who 'award' (basically are the gate keepers) to all federal and state need based financial aid as well as any individual scholarships the colleges administer. they take their published 'cost of attendance'-tuition, fees, books and supplies, a figure for room and board (2 tiered amounts-different amount if living w/parents vs. out of parent's home in dorm or private housing), transportation and 'personal expenses' (flat amounts-not individualized per student) and go from there in the following manner:

cost of attendance
-expected family contribution
="student initial need"

student initial need
-"outside resources" (these include any/all scholarships NOT awarded through the college)
="student need"



"student need" ends up driving how much a student is awarded in federal subsidized/unsubsidized (up to the maximum allowed by federal law) loans (pell grants are exempted from being reduced-but let's be real, how many kids actually qualify for pell grants with the way the efc is calculated). students are REQUIRED to report any/all outside scholarships because federal law (and in some states-state law pertaining to state grants/scholarships) requires colleges coordinate all 'educational resources' (including outside scholarships). federal law is also clear to students if they are applying for any federal grants/loans-"If you fail to report an outside scholarship, you may be required to repay the school or the government all or part of your need-based financial aid package". at many universities like the one our dd attends-it's financial aid fraud (basis for expulsion) if you are found to have not turned over/arranged for all outside scholarship funds to go directly to the university to hold and distribute

in reality we don't know of a single college student who has gotten an outside their college awarded scholarship that didn't have some financial impact on what the college ultimately awarded them in need based aid (more often than not-loans they needed to meet the unrealistic efc the fafsa labeled their parents with).

 

[Livvie]

1) I would NEVER take out kids', grandkids' or great-grandkids' tuition loans.
2) Make THEM take out the loan(s).
3) You can make the payments if you wish.
4) This way, if they would default or drop-out, you are not stuck with the payments or bad credit.
5) Plus, when YOU pay, it can disqualify the student from loans or grants.

NOTE: I am the scholarship Administrator for our local Kiwanis group. When we issue scholarships, we are very careful how we do it, so it does not influence other scholarships-loans-grants to the student.

Students are required to report any other forms of income, like scholarships, loans, grants, etc. Financial aid is always reduced to compensate for the other money.

Another point that many people seem to not know is Freshmen are only eligible for $5500 in federal loans their first year. That amount increases a little year to year, but it in no way even comes close to covering an entire years worth of college costs.

 

[Mickeyluver37]

I love when the people show up on these threads saying the parents shouldn't pay take out any debt for their kids' college, but with no feasible solution. Anyway.....

We will be in the same situation in Fall of 2017 and I've actually looked into this and feel like a HELOC will be better for us for several reasons.

1. We can deduct the interest rate on the HELOC on our taxes, but due to income level and our own student loans, there would be no tax benefit to any additional student loans in our names.

2. The interest rate is better. PLUS loans are currently 6.84%.

3. Parent PLUS loans have a FUNDING fee on top of the interest. That is currently 4.272%- So for a $1,000 loan, you are only seeing $957.28, but then you will be paying interest on the full $1,000.

Since a HELOC is something we can draw from and pay on whenever, we will just continue to pay it as aggressively as we can, throwing extra money at it here and there instead of just worrying about sticking to a monthly payment schedule. It's only the 2 year overlap where we will really be strapped.

 

[Aliceacc]

My son will be starting college in the fall.

I'm guessing we should hit the credit union sometime pretty soon and look into this?

 

[supersnoop]

Students are required to report any other forms of income, like scholarships, loans, grants, etc. Financial aid is always reduced to compensate for the other money.

Money paid directly to the school is generally not included as income to the student.

 

[barkley]

Money paid directly to the school is generally not included as income to the student.

it is if it's a scholarship or grant-

every scholarship dd receives is required to be directly paid by the issuer to the university which the university then uses to determine her 'student need' amount. any grants she's eligible to go directly to the university as well and get deducted from the need amount before the final calculation is done that determines her eligibility to any other need based programs (including loans).

 

[barkley]

PLUS loans are currently 6.84%.

Parent PLUS loans have a FUNDING fee on top of the interest. That is currently 4.272%

I'm guessing we should hit the credit union sometime pretty soon and look into this?

I sure would-I don't know what heloc rates are like in other parts of the country but here credit unions are offering them w/no fees at 3.99% fixed rates. sounds a WHOLE LOT BETTER TO ME.