Parent Loan DENIED?

[ecrcg]

I want and plan to help my kids pay for college and the expenses that come with it.....I expect them to take out some loans, but I also want to take out the PLUS loans. My question is, what if I get denied? I don't have negative credit items necessarily, but we do have a lot of outstanding debt (mortgages, car loans, etc.) Any advice?

[Scanner]

My general advice is if you are denied, it may be with good reason. As much as you want to help your kids, don't sacrafice your future for it. Let them pay some of the way and help in other ways such as paying for car insurance so they can work.

Even if it takes 4-8 years to finish their degree, it's better than you getting saddled with a huge debt and them taking care of you in your old age.

[abowers]

If you are denied for a PLUS loan, your student will be awarded an unsubsidized Stafford Loan ($4,000/yr if freshman or sophomore, $5,000/yr if a junior or senior).

In addition to PLUS loans, there are other alternative loans parents and students can apply for. Some states offer student loans (i.e. in NJ there is the NJ Class loan), or check with your kid's financial aid office for the rates and terms of alternative loans through their preferred lender. Also check with your bank or credit union.

You should expect your kids to take out some loans, I think it makes college more meaningful to them and helps teach them responsibility. My parents had me take out loans (they helped, too), and I am ok with that. Thanks to AP Courses in High School and earning decent grades each semester, I finished in 3.5 years, and saved myself a semester of loans. You don't want to screw up in college if you know you are paying for part of it. Then there the student that knows their parents are taking care of the whole thing and they have nothing to pay for, and it takes them five years and summers to get their undergrad degree because they failed some courses and couldn't decide on a major.

In addition, make sure your student is doing well in HS so they can qualify for the best merit scholarship available at their college. Apply for outside scholarships based on your kid's volunteer or leadership activities. Colleges also offer other need-based grants and scholarships, so make sure to complete your FAFSA by the college's priority deadline for optimal consideration.

[abowers]

Also, do your kids have jobs? They can be saving for college while working in high school, and can get a part time job while in college to cover their own extra expenses (groceries, going out to dinner or a movie, etc).

[fairy74]

It can happen. I had friends whose parents wanted to take out the PLUS loan but their debt load was too high. There are private programs as well, but I agree don't overload yourself to help your children with education. They can work and take out loans as well.

[JustinH]

Be careful with private student loans.

If your credit is not A1, then expect to pay 3-4 points above prime.

Mine is at 11 percent, on a 18,000 loan.

[abowers]

Your kids can always consider going to a state or community college for the first year to save some cash, then transfer the core curriculum credits in to their desired college if their desired college is pricey.

JustinH is right though-- even the private alternative loan at my grad school -- the best rate starts at Prime + 3% :-X There are credit cards out there with lower interest rates!

Have your student take out any Stafford Loans they are eligible for -- it's at a fixed 6.8% now, and payments deferred while in school. Government pays for the interest on subsidized staffords while in school; for unsubsidized staffords the student is responsible for interest that accrues while in school but can choose to defer it or to make interest only payments while in school. Payments begin 6 months after graduation or dropping below half time.
Perkins loans, if eligible for them, are only 5% and deferred while in school, and payments dont start until 9 months after graduation or dropping below half time.

[rebeccae55]

I speak from experience. Not about debt, because we managed to get one child through without any. We have another starting in Fall 2008. But we learned something no one tells you. Don't do what we did and multiply the estimated cost for the freshman year by 4 and think that's what you'll pay. The estimates in the catalogs are too low, to the point that I would call them misleading. Not to mention that college costs have been increasing 7-8% per year. Also, the estimates don't include costs like a fraternity or sorority as well as many required fees and expenses that crop up over the course of a year. And the things they'll need in college, like a their own computer and things for their dorm or apartment. And about $400 per semester for books (if they really shop them, they may save a good bit). If they go far away, you'll have to budget for transportation. And all the while, you'll still be paying (unless you make them) their car expenses and insurance (if they have one), medical insurance, out of pocket medical and dental costs, cellphone, clothes, recreation, and basically everything else you are paying for them now.

I have the following suggestions which echo the other replies.

If you have a few years, or even just a few months before the first on starts, save as much as you possibly can so you won't have to borrow so much later.

Secondly, your kids can/should work during summers and be expected to save a portion of their incomes for college. Once in college, and possibly while they are in high school, they can work part-time during the school year to pay for their personal expenses.

What kind of schools are they planning to attend? Can they live at home? If not at home, are they planning to go elsewhere in-state?

I am always amazed at the debt people, both parents and students, are willing to take on for college. Especially when the parents don't have much saved for retirement and have other debt. How are your retirement savings?

People say a house is the biggest expense most of us will ever make. But for a lot of people, if they choose private or out-of-state schools, it's the education of their children. Is that the best use of money when in-state schools educate well?

Best wishes in planning this.