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8FillTheHeart

The Parent Loan Trap

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This is an older article, so it might already have been discussed here in an "off" college yr for family.

http://chronicle.com/article/The-Parent-Plus-Trap/134844

 

Thought I would post it since it nearing that time of yr when decisions are going to be made.

 

(Full disclosure here, we personally refuse to take out plus loans bc if we did for each of our children, we would be in serious financial as they accumulated. Others don't face the same financial predicament we do and would be better able to pay of the loans with an end in sight)

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As always: people should not borrow more money than they can afford to pay back, and education expense must be seen in relation to return of investment.

With an income of 25 k, it is irresponsible to borrow 17 k - unless the degree has a high return of investment: if you know your kid's starting salary out of college will be 60k, it's not a problem. Nor would it be a problem with a parental income of 80k.

 

The problems come when parents borrow more money than they can realistically afford to pay back, and when they finance degrees that are a poor investment. Borrowing money for an art history degree is very different from borrowing money for an engineering degree. Not all college degrees are created equal.

 

We have not ruled out the possibility of taking loans. We will, however, make absolutely certain not to overextend ourselves.

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People get out of control with their debt regardless. I know someone who is over $100K in debt for a degree in education. They will never be able to even afford the payments on that on a teacher's salary. 

 

I see people posting on CC often stating they need to take out debts that are very high, 100K or more, to do to their dream college. It seems as if they don't understand want vs need. They do not NEED their dream college, they just want it. And they could be ruining their lives by doing that. 

 

Parents do the same thing. I can see from the financial aid package that at some schools, they would expect me to pay the EFC and then take out $20K a year in loans on top of that. They tell me no one else has a problem with it. Well, I do. And I will never do that. There are too many other choices out there. 

 

I saved enough to pay the EFC. And stupidly, I have my own student loans that I am still paying after all these years. The interest rate on student loans was 8.25 percent in the 80's, and I stupidly took out unsub'd loans, not knowing better. The stupider part is, I was a national merit and could have easily picked a school that had scholarships for that. I had a zero EFC so I could have picked a school that met need. Some schools try to claim they "meet need" but then they define that by offering ginormous loans. We pay close to $1000 a month on loans that funded my state university education 25 years ago. We are paying that now. 

 

But the point is, I have saved the EFC to pay for my children. Anything above and beyond is extra for me to pay. And I will not pay for a bad investment. Since my son has scholarships that have very reasonable rules regarding majors and progression toward the degree, I am maintaining the rules with my other children, plan to anyway. I do not feel it is my obligation to pay above and beyond what the gov't says I should pay. If I were a spender and the only reason I could not afford to pay my EFC was because my husband I drive new SUVs and take costly vacations and live it up in a house that stretched us to our limits, then I would think it is reasonable for me to take out parent loans. My children should not lose out because I was financially irresponsible. But if it is just a matter of we do not earn enough to cover those higher amounts, then no, I will not take out parent loans at all. And I do not think someone should.

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Even if it is older, IMO it's a good reminder to parents each year to be careful about finances when searching for and accepting slots at a school.

 

FWIW,  NYU on CC gets a big shout out as a BAD place to go if one wants/needs aid...  It does not surprise me that their main subject came from there.  Also mentioned was Penn St - notoriously known for being bad here in the state at least. 

 

I clicked on their graphic, then had it sort by average amount borrowed.  No names on there surprised me (Duke was even on the second page when arranged that way - that was my #1 that I couldn't go to back in the day due to finances - some things never change...). 

 

FWIW, there's no harm in applying to these schools as some do have nice scholarships IF one gets them - well worth trying - but definitely don't fall in love until one knows the finances truly work.

 

Workable finances simply had to be a factor for my guys, and while it limits choices, it does not mean they had no choice of good schools.

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FWIW, there's no harm in applying to these schools as some do have nice scholarships IF one gets them - well worth trying - but definitely don't fall in love until one knows the finances truly work.

Ayup. This is our strategy exactly.

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DH is will retire while the first DC is in college, so we want to avoid loans if at all possible.  We'll see...

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Unfortunately, we will (are) be taking out parent plus loans to help meet our EFC whether our kids go to LAC or State college....oh, well...... 

 

 

Myra

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What is EFC? 

 

With first two dc, paying for college wasn't a headache because we lived in state that offered a state scholarship based on ACT score.  That scholarship combined with scholarships offered by the universities was enough to cover everything.  Different story for last dc.

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What is EFC? 

 

With first two dc, paying for college wasn't a headache because we lived in state that offered a state scholarship based on ACT score.  That scholarship combined with scholarships offered by the universities was enough to cover everything.  Different story for last dc.

 

EFC = Expected Family Contribution, a number determined by the FAFSA.

 

A number of state university systems are offering financial incentives--tuition scholarships for certain GPAs or test scores.  But they are doing something sneaky too.  They are raising fees through the roof.  The calculator on the IPEDS site is useful in determining the net price.

 

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