Private vs parent plus st loans for a kid

[flowerofsun]

Hi guys,
My 20 year old son just told me that he needs my help with his tuition.
Apparently, there are 2 things we can do:

1) Take private loans. They will be in my sons name  only, and I will be a cosigner for it. (So its still will go on my credit report, correct? Because being a co-signer still puts my name on the loan, I guess...)
Will we be able to consolidate these later on into federal student loans? Is it easy to consolidate this into the federal student loans after he graduates or later on while he is in school?


2) The second option is the parent plus loan, its a loan from the federal government but that one I should take in my name only and my son probably wont even be on the loans, not sure on that...
The benefit of this one is it will be already with the Federal Government so all the forbearance/income based plan repayments will be available, which is a huge plus in case down the road he loses his job or struggles financially.
The huge disadvantage is that its in my name, and I am not just a cosigner but its in my name... Does it even make a big difference between having a loan in your name and being a cosigner?

Why did I not have to have any cosigners when I was taking out my student loans for my school? I was older than him, around 28 y o...Is it the age that makes a difference?
(My son was working but I claimed him on my taxes because he started working recently)


In either case scenario, if the loans are not paid it will ruin my credit, correct?

[flowerofsun]

34 people looked and no one has any pointers/suggestions/ideas for me?

[SailingOnASmallSailboat]

Have you filled out the FAFSA? That, IMO, is step 1. I’m guessing you’re not generally helping with his tuition and this would be a shift.

Of course there are options. He can change schools to one less costly. He can take a break from school while he saves up money to pay for it. He can move back in with you to save on housing costs (assuming he’s living on campus) You can take out the loan yourself and have him pay you back. You can pay his tuition and have him pay you back.

But yes. Any loan you’re a co-signer on can affect your credit.

[Louise]

Your son's employment status has no bearing on the parent plus loan. You are solely responsible for it unless your son chips in voluntarily.

You cannot refinance a private loan to a federal loan, if you decide to cosign.

How much tuition are you talking about? Did you fill out the FAFSA? Your son can take out a limited number of federal loans under his own name. I assume he has already done this?

[charis]

How did he pay tuition before now? Do you need to take out a loan or can you contribute cash directly to the school?

I needed a co-signer on a small grad school loan when I was 28 in 2008 (I had credit at the time (renter/credit cards/federal loans but not much income).

[midweststache]

1. Short answer: yes, in either case if the loans are not paid your credit will be impacted.
2. It would also be helpful to know how much in loans you're talking about and for what kind of degree/job prospects. Co-signing $10K is a lot different than $50K which is a lot different than $100K. (I hope you're not looking at $100K for an undergrad degree...) Will your kiddo be relying on assistance plans, like student loan forgiveness, to repay the loans, or will they be on a standard repayment plan? If you take out the Parent Plus loan, can you repay it with no help from kiddo?
3. It sounds like you're "worst case scenario"-ing this (e.g. job loss resulting in forbearance needs) but it you're actually thinking "I know my kid and unpaid loan payments that would ruin my credit are a likely scenario" then I would either a) seriously reconsider helping and maybe suggest taking a semester off to work for tuition OR 2) the Parent Plus loan to the best of your abilities with the hope (but no expectation) that it is paid back.
4. In either situation, I would sit down and have a frank discussion about what this will do to *YOUR* finances for your kid. I was a dumb, narcissistic 20-year-old, but also the disappointment of letting down my parents would have TERRIFIED me in this kind of situation. (Kudos to you for helping your kid get through college! Make sure they know what a blessing that is and how it impacts your own finances.)

[Dee18]

If you are a co-signer on a loan you are completely responsible for full payment of the loan. I would only do either one if you are completely comfortable with paying the entire amount. 

Has your son spoken with the financial aid office at his school?  Given that he is only 20 and you are considering a personal financial obligation, perhaps you could do so together.  Did he lose a scholarship he previously had?  If so, why?  Did he fail to file necessary forms to get aid like work-study?  Find out what all the options are (including as others have suggested his taking a semester off to work and save money).  Did he work as much as possible during summer break?  Does he work part time during school? Can he save money by living at home a semester?

You may already know the answers to all of those questions.  If not, they should help you make your choice .

[flowerofsun]

Your son's employment status has no bearing on the parent plus loan. You are solely responsible for it unless your son chips in voluntarily.

You cannot refinance a private loan to a federal loan, if you decide to cosign.

How much tuition are you talking about? Did you fill out the FAFSA? Your son can take out a limited number of federal loans under his own name. I assume he has already done this?

thank for the refinance info, I did not know that.
yes, he filled out Fafsa. The tuition is 80K/year (Ivy leage), I am cosigning for 20K per semester, so only for 40K per year
So do you think if the tuition was 10-20-30K per year they may did not require me to cosign?

[flowerofsun]

How did he pay tuition before now? Do you need to take out a loan or can you contribute cash directly to the school?

I needed a co-signer on a small grad school loan when I was 28 in 2008 (I had credit at the time (renter/credit cards/federal loans but not much income).

I paid his tuition before...
I had low income when I took out my loans and they did not ask me for a cosigner.
Why would they make you and my son to ask for a cosigner?

[charis]

How did he pay tuition before now? Do you need to take out a loan or can you contribute cash directly to the school?

I needed a co-signer on a small grad school loan when I was 28 in 2008 (I had credit at the time (renter/credit cards/federal loans but not much income).

I paid his tuition before...
I had low income when I took out my loans and they did not ask me for a cosigner.
Why would they make you and my son to ask for a cosigner?

You aren't providing much information.  Can he/did he apply for federal loans?  If you were paying his tuition previously, why did you stop?  What the original plan for him to pay tuition?  80k at an Ivy league school seems like something you'd have a plan for.  Many ivies have a free tuition program for students whose families' incomes is under a certain amount.

You seem kind of suspicious of the cosigner requirement, do you think your son is hiding something or have concerns about the amount or his ability to pay on the loan?  I would be very surprised if a college student could take out private loans without a co-signer.  I don't know what year you did not at 28, but my situation came directly after the financial crisis of 07-08 and lending standards tightened up significantly. 

[SailingOnASmallSailboat]

The FAFSA also requires you as parent to fill out a bunch of information. If you don’t, your kid is ineligible for subsidized loans. If you haven’t filled our your FAFSA stuff, that’s a good place to start (although if it’s for this fall semester, you’re likely out of luck in terms of getting financial aid as it’s likely all allocated.)

More info here:
https://studentaid.gov/apply-for-aid/fafsa/filling-out/parent-info#unwilling-parents

[flowerofsun]

The FAFSA also requires you as parent to fill out a bunch of information. If you don’t, your kid is ineligible for subsidized loans. If you haven’t filled our your FAFSA stuff, that’s a good place to start (although if it’s for this fall semester, you’re likely out of luck in terms of getting financial aid as it’s likely all allocated.)

More info here:
https://studentaid.gov/apply-for-aid/fafsa/filling-out/parent-info#unwilling-parents

I did not know it worked like that, first come first serve? I thought they have algorithms  based off of the income?

[SailingOnASmallSailboat]

Schools only have a certain amount of money for financial aid each year.  Similarly, they’ll have a limited amount of funds for work-study (a part of federal loans). They usually have deadlines to apply for these funds and within the pool of applicants they apply criteria. It’s highly unlikely that they have monies left for a semester that starts within the next week or so but you never know. 

Edited to add in: the amount of aid requested is usually far, far greater than the available funds. Some Ivy League and other very wealthy schools have a policy of waiving tuition/fees over a certain amount for people of a certain income level - this is determined by the FAFSA.

When you and your kid fill out the FAFSA, you’ll be advised of what’s termed an “EFC”, an “expected family contribution”. That EFC has nothing to do with the school’s tuition at all but is merely a guesstimate of what the federal government expects you to contribute to this year of schooling. Many times school financial aid starts by taking a look  at this number (which is no guarantee of anything at all, btw - if your EFC is $1000 and the school’s costs are $50,000 it doesn’t mean you’ll get $49,000 in aid)

A lot of private schools also require another form (again from bth the kid and the parent) called the CSS Profile.

In essence, schools largely don’t want to be subsidizing the education if parents and kids can afford to pay.

*edited to add: What parents and kids can afford to pay in the eyes of the government, which is often wildly different than what you might be thinking you can afford. The assumption is you’ll use cash and savings plus a good portion of current income to pay the bills. This is why any loan stuff at all starts with the FAFSA.

[roomtempmayo]

Something seems off in your situation, @flowerofsun

I'd call the financial aid office at your son's school to see if your FAFSA or CSS Profile have been fully filled out, and whether you/your son has applied for all sources of internal funding.

[charis]

Something seems off in your situation, @flowerofsun

Agreed.  I wonder if the OP is a non-custodial (or step) parent who was not previously involved in the financial aid process.

[flowerofsun]

Something seems off in your situation, @flowerofsun

Agreed.  I wonder if the OP is a non-custodial (or step) parent who was not previously involved in the financial aid process.

I was always a custodial parent. But its a first time he needs me to take out loans for him. I have been paying cash for his tuition before because he was in the community college and his tuition was much lower. But he is not in the community college anymore so I cant afford his tuition and he needs my help

[charis]

Something seems off in your situation, @flowerofsun

Agreed.  I wonder if the OP is a non-custodial (or step) parent who was not previously involved in the financial aid process.

I was always a custodial parent. But its a first time he needs me to take out loans for him. I have been paying cash for his tuition before because he was in the community college and his tuition was much lower. But he is not in the community college anymore so I cant afford his tuition and he needs my help

Were you involved in the financial aid application process when he transferred schools?  Does he have federal loans?

[Laura33]

yes, he filled out Fafsa. The tuition is 80K/year (Ivy leage), I am cosigning for 20K per semester, so only for 40K per year

Ummm, this is not an "only."  Median household income in the US is somewhere around $70K, while the median personal income is around $45K.  See for example https://worldpopulationreview.com/state-rankings/average-family-income#.  You are effectively signing up to spend the US's median personal income every year, just for your son's schooling.  And worse:  Current You is not paying for it, because Current You doesn't have the money available, so Current You is passing the buck to Future You. 

My impression from the posts so far is that you really don't have a lot of information about what you are diving into here.  That means that you are agreeing to take on somewhere between $80K-$120K in debt (depending on how many credits transfer) without really understanding the terms of that debt or how it will affect your finances long-term -- or, indeed, investigating other options for paying for your son's education without taking on what is effectively a mortgage on a small house. 

Please please do not sign anything without fully understanding the financial impacts on you.  Assume that you are 100% responsible for this debt -- because in the lenders' eyes, you are.  Assume that the PSLF program goes away.  Assume that you cannot get this debt discharged in bankruptcy.  If all of that is true, will you be able to afford paying the loans?  Unless your answer to that is a resounding "yes, of course," don't do it.  Just don't. 

Please do talk to someone at the college about what his and your options are.  If they need more information from you about your finances to qualify him for more need-based aid, then get that together and get it submitted.  If it means he needs to defer admission for a semester or two to hit the next financial aid cycle, that is far, far preferable to crippling yourself financially with debt you cannot afford.  You need far more information than any of us here can provide.  It's worth taking to the experts -- people at the college, your own financial advisor to help you evaluate how the loan will affect your budget and retirement plans, etc. 

And remember:  just because your son got into an Ivy doesn't mean he has to go.  Yes, it is fantastic that he got admitted, and we all want to give our kids the best start in life.  But that doesn't mean we need to -- or should -- pay for our kids to have things that we can't afford to give them.  And there is good data suggesting that a fantastic school matters less than the characteristics that allowed the kid to get into that fantastic school in the first place.  IOW, if your son is such a great student that he got admitted to an Ivy, he doesn't actually need the Ivy to succeed in life, because those same qualities will allow him to succeed equally well somewhere that doesn't cost you $40K/yr in loans. 

[charis]

yes, he filled out Fafsa. The tuition is 80K/year (Ivy leage), I am cosigning for 20K per semester, so only for 40K per year

Ummm, this is not an "only."  Median household income in the US is somewhere around $70K, while the median personal income is around $45K.  See for example https://worldpopulationreview.com/state-rankings/average-family-income#.  You are effectively signing up to spend the US's median personal income every year, just for your son's schooling.  And worse:  Current You is not paying for it, because Current You doesn't have the money available, so Current You is passing the buck to Future You. 

My impression from the posts so far is that you really don't have a lot of information about what you are diving into here.  That means that you are agreeing to take on somewhere between $80K-$120K in debt (depending on how many credits transfer) without really understanding the terms of that debt or how it will affect your finances long-term -- or, indeed, investigating other options for paying for your son's education without taking on what is effectively a mortgage on a small house. 

Please please do not sign anything without fully understanding the financial impacts on you.  Assume that you are 100% responsible for this debt -- because in the lenders' eyes, you are.  Assume that the PSLF program goes away.  Assume that you cannot get this debt discharged in bankruptcy.  If all of that is true, will you be able to afford paying the loans?  Unless your answer to that is a resounding "yes, of course," don't do it.  Just don't. 

Please do talk to someone at the college about what his and your options are.  If they need more information from you about your finances to qualify him for more need-based aid, then get that together and get it submitted.  If it means he needs to defer admission for a semester or two to hit the next financial aid cycle, that is far, far preferable to crippling yourself financially with debt you cannot afford.  You need far more information than any of us here can provide.  It's worth taking to the experts -- people at the college, your own financial advisor to help you evaluate how the loan will affect your budget and retirement plans, etc. 

And remember:  just because your son got into an Ivy doesn't mean he has to go.  Yes, it is fantastic that he got admitted, and we all want to give our kids the best start in life.  But that doesn't mean we need to -- or should -- pay for our kids to have things that we can't afford to give them.  And there is good data suggesting that a fantastic school matters less than the characteristics that allowed the kid to get into that fantastic school in the first place.  IOW, if your son is such a great student that he got admitted to an Ivy, he doesn't actually need the Ivy to succeed in life, because those same qualities will allow him to succeed equally well somewhere that doesn't cost you $40K/yr in loans.

I'm not disagreeing per se. But if my children went to a community college for two years and then transferred to a an ivy league college, it would be very hard to argue a bigger bang for one's educational buck.  It's certainly a large amount of money.  Nothing to take lightly.   But school is probably starting this week.  And the OP is not providing enough details to give sound advice.

[Laura33]

I'm not disagreeing per se. But if my children went to a community college for two years and then transferred to a an ivy league college, it would be very hard to argue a bigger bang for one's educational buck.  It's certainly a large amount of money.  Nothing to take lightly.   But school is probably starting this week.  And the OP is not providing enough details to give sound advice.

Don't get me wrong -- I'd do it in a heartbeat.  But I've also saved enough to pay for it up front and earn enough to cashflow anything extra.  OP doesn't have the savings and likely doesn't have the income given the reliance on PSLF.

Having a kid who is smart enough to get into an Ivy and financially savvy enough to do CC first is something to be proud of, and it's completely understandable to want to reward the kid for all the work and prior good choices.  But that doesn't mean you are obligated to if you cannot afford it.  Nor does it mean your kid will be damaged in any way if you can't afford it, because a kid like that is going to flower wherever he's planted. 

tl;dr:  there is a lot of guilt and expectation and emotion involved in decisions that affect our kids.  My main concern is that OP seems to be assuming that the kid needs to go to the Ivy come what may, and that it's OP's job to take on any burden necessary to achieve that, regardless of the cost to OP's future.  I just want to make sure that OP knows that those assumptions are not true, and that a different path will not actually hurt the kid's long-term options.  OP can still decide to take out the loans, but that decision shouldn't be made out of guilt, obligation, or fear -- and should be made with a full understanding of all the options and the consequences of each. 

[flowerofsun]

Thank you guys so, so, so much for all your help!!!

[roomtempmayo]

Thank you guys so, so, so much for all your help!!!

Any luck getting the loan situation sorted out?