Does taking out a Direct Parent Plus loan affect ability to get a mortgage if we move?

[HGrace]

We only owe $50,000 on our house; husband close to retirement age. We might move south and need a small mortgage (maybe $30,000) or loan. Will taking out a Parent Plus loan for $80,000 (over the course of her 4 years) affect our ability to take a mortgage? Our income is fairly small-$65,000-but debt isn’t terrible.

Any ideas?

[JanetC]

An 80,000 loan on 65,000 of income is not wise. Parent Plus will loan to you without examining your ability to repay the amount borrowed. But that loan would show up on your credit report for a mortgage lender to see, and mortgage lenders do care about ability to repay. Private student loans also consider the borrower and cosigner ability to repay, which makes it harder for you to shop for a lower interest rate than Plus.

Is there a more affordable education option for your child? Could your husband delay retirement to pay for college?

[HGrace]

Thanks, Janet-we are struggling so much with this decision :( We just checked and we’ve already missed the deadline for community college, etc. He could delay retirement, plus I’m ten years younger and could work longer. We just don’t want to affect our ability to have enough leeway to do a mortgage, etc. AGHHHH. It just doesn’t seem wise. 

[catz]

This is a really risky idea.  Both for you and for your child if you're hoping to transfer the debt to her.  Is she a senior and hoping to go to college in the fall?  Do you have more reasonable options?  Have her work  over a gap year and try for plan B?

Payments on 80K over a 10 year term approach $1000 a month at 7% interest. That would be quite untenable for you as parent should she be unable to pay for whatever reason.  It will absolutely affect your credit and your ability to borrow and is a risk to retirement.  If she took over the debt, it would be very life limiting for her in terms of job selection, starting a family, etc.   Would she also need to be paying off federal loans on top of this?  

 

[JanetC]

Assuming you don't borrow Plus until your student has exhausted the lower interest rate federal direct loan program, you're trying to start your child off at graduation with 80,000 + 27,000 = 107,000 in loans. 

The payments would be about 1200 per month for 10 years, assuming you couldn't refinance at a lower rate.

https://money.usnews.com/money/personal-finance/family-finance/articles/2018-02-12/the-problem-with-plus-how-parents-buckle-under-the-weight-of-college-debt

Did you talk to admissions at the community college? The priority deadline may be past, but perhaps there is late registration.

[Frances]

That sounds like a lot for you to borrow and her to take on later, especially if it’s on top of her own federal loans. The standard advice is not to take on more than you expect to make in salary right of college. I don’t think nurses start at $80k+. My niece who is in nursing school took a gap year to work. She got her CNA certificate and then later got paid while training to be a phlebotomist, a part-time job she’s continued while in school. She worked up to four jobs at a time during her gap year and saved lots of $. It’s been very tight, but she’s finishing up her second year and so far neither her nor her parents have borrowed anything. Next year she will move back home and probably take the basic federal loan, as her sister is starting college.

[catz]

Even if your CC is officially past due dates, I would call them.  There is also a good chance you could start winter semester even if you couldn't start fall.  The one my kid dual enrolls at is much more flexible with their deadlines if they have space.

[catz]

I've sat in on a few college admissions sessions with consultants certified in this arena and do this for a living.  All of them recommend sticking to federal limits if you can, and no more than 1/2 expected annual income for an average new grad in total with federal loans in the mix.  Majors can change so don't high ball that estimate.  I don't think the finances of college admissions are talked about realistically nearly enough.  

[catz]

I saw this on CC, but it's a good article about parent plus loans.  

https://www.chronicle.com/article/the-parent-loan-trap/134844

[dereksurfs]

There are lots of tough financial decisions to consider as kids approach college age while parents are preparing for their retirement. We've wrestled with these same issues as have our friends. One co-worker has 10 kids and his wife doesn't work. Their kids need to fund their own college in that case and they some how figure it out.

The notion that our kids should go off to a U away from home their freshman year simply because it would be nice or their friends are doing it just cut it for us. Why pay 3-4X+ more in tuition plus room and board simply for an experience? If the money was there and it wasn't a financial burden then great, why not? Otherwise it seems excessive and unnecessary. All the GEs including English 101, etc... can be done at the local CC level. 

I was just reading interesting comments on a college site last night from students at the U where our son is considering attending. They were answering a question about things they would have told themselves as a Freshman if they had known. One of them was exactly this. That they could much more easily take their GEs at a CC with smaller class sizes from instructors vs. TAs in 200-300+ auditoriums at the larger Us and save lots of $$ in the process. The university professors teaching these large lower division classes do not have the time nor patience to cater to the needs of all of their students - enter the TAs. Is that really worth paying a premium for or going into greater debt over? Maybe in some cases for certain 'special' priveledges. But in many cases its not, IMO, when considering the big trade offs. For us its simply not worth it. Either way they will end up with degree from the same school and no one will ever care that they took GEs at a CC. In fact, if it ever comes up in a conversation post graduation most will congratulate them for saving money.

Now if there are significant scholarships that's a different story financially speaking. But many times, even modest scholarships still leave a lot to be covered by the parents (EFC) or loans. Its not worth risking your financial stability during retirement for that, IMO. Have you considered living closer to the school to save even more on room+board+travel+misc expenses?

[Tsuga]

2 hours ago, HGrace said:

We only owe $50,000 on our house; husband close to retirement age. We might move south and need a small mortgage (maybe $30,000) or loan. Will taking out a Parent Plus loan for $80,000 (over the course of her 4 years) affect our ability to take a mortgage? Our income is fairly small-$65,000-but debt isn’t terrible.

Any ideas?

 

Yes. That debt will be part of their debt to income ratio.

I'd consider asking for late registration at a more affordable school. $80,000 is a lot of debt.

Also, are you working? Is she working? Even if you each only earn $10,000 per year, that's still $80,000 over four years between two people.

[MerryAtHope]

5 hours ago, HGrace said:

Thanks, Janet-we are struggling so much with this decision :( We just checked and we’ve already missed the deadline for community college, etc. 

 

I agree with those who said to call or to start in the winter. But I'd be really surprised if you can't still register for fall--our CC just OPENED registration for fall on the 16th, and it's open until classes start. I saw that your dd wants to become an RN--so maybe you mean you missed their application period for the RN program for this year? If that's the case though, it's still worth waiting a year, and you might find there are some classes she could be doing anyway. I'd go talk with them. Completing the RN at the CC, and then doing an RN to BSN program to finish is going to be so much cheaper than what you are considering right now. (Ours even has a part-time nursing program that allows CNA's and others to work while getting a degree, and they finish the RN in close to the same time frame--2 years plus 2 summers--and she could be saving money towards finishing out too.) $80K in debt plus her other student loans is much higher than the common recommendation (loans should be no more than half a prospective salary, and $80K would be more than her entire prospective salary). Even if you have to delay her going for a year to figure out a better plan, it would be so worth it for her to not be saddled with this kind of debt--or you and your husband, or both. 

[katilac]

13 hours ago, dereksurfs said:

One of them was exactly this. That they could much more easily take their GEs at a CC with smaller class sizes from instructors vs. TAs in 200-300+ auditoriums at the larger Us and save lots of $$ in the process. The university professors teaching these large lower division classes do not have the time nor patience to cater to the needs of all of their students - enter the TAs.

1

Like everything else about college, this is very school-specific. Both of my kids wound up choosing mid-sized schools, which are still multiple times bigger than our CCs, and we also looked closely at several huge schools.  Most of the gen eds had quite reasonable sizes, no one was taking college composition with a hundred other students.  Some had larger classes for things like calculus, but nowhere near 300 students and then broken down into small groups for recitation and such. UA is one of the biggest schools in the country, but less than 22% of their classes have over 50 students, and nearly 37% areless than 20 students.  The huge classes taught by TAs exist, but it's not universal and not nearly as common as the popular perception. Don't knock big state schools off the list due to this assumption, check the particulars of every school. 

OP, any type of debt can affect your ability to get any type of loan.

I'd double-check the CC dates, look at other CCs nearby, and look for universities with rolling admissions. 

[dereksurfs]

5 hours ago, katilac said:

Like everything else about college, this is very school-specific. Both of my kids wound up choosing mid-sized schools, which are still multiple times bigger than our CCs, and we also looked closely at several huge schools.  Most of the gen eds had quite reasonable sizes, no one was taking college composition with a hundred other students.  Some had larger classes for things like calculus, but nowhere near 300 students and then broken down into small groups for recitation and such. UA is one of the biggest schools in the country, but less than 22% of their classes have over 50 students, and nearly 37% areless than 20 students.  The huge classes taught by TAs exist, but it's not universal and not nearly as common as the popular perception. Don't knock big state schools off the list due to this assumption, check the particulars of every school. 

OP, any type of debt can affect your ability to get any type of loan.

I'd double-check the CC dates, look at other CCs nearby, and look for universities with rolling admissions. 

 

Yes, this is definitely college specific.In fact, one of the larger schools we are looking at has both types of campuses. UW Seattle at 46K students has these very large classes while its satellite campus, UW Bothell, has the opposite. This benefit is actually one of the discriminators it advertises in offering smaller class sizes. The students get instruction from actual professors who they can interact with rather than TAs in recitations, etc... at the larger campus.

"The only unusual thing about the Bothell extension of UW is that the class sizes are smaller. This is better for me individually because every class is more intimate (with a class size of about 40 people) and getting to know professors (and having them know you by name) is more common. I like this style of class much better than a 200+ person hall lecture at the Seattle main campus." -- Paige Class: Junior 

"University of Washington has many incredible departments and experienced faculty, but the class size in the undergraduate level makes it extremely challenging due to the average sizes of 400-500 students. This vast size causes a disconnect between professors and students. I have heard many complaints from fellow classmates about the lack of communication with the professor. Another side effect of the large class sizes influences the curve based grading system. Because the classes are so large, there is a large possibility that a student will not get the desired grade due to necessity to maintain grades above everyone else." - David Class: Junior

Sure, those aren't 'every' class at the big schools. However, it is enough to create an unpleasant experience and impression on many first time college students. There are those who simply do not like that type of environment. I remember taking my first classes at UCLA during the summer after graduating high school. I hated it much to my father's dismay as an alumni. So I think this varies student to student as well. But it is a significant complaint among students, not just a perception. I can find and quote many examples. Suffice to say its a real problem.

[ThisIsTheDay]

So she missed the CC deadlne for the RN program? Has she already fulfilled the prerequesites for the program? IME, this would typically include A&P 1 and 2. She could fill up any of the gen ed classes the program will require such as health/CPR, English, math. Then she could apply to the program for next year. The thing to watch out for is that she would be able to still take enough credits while in the program to qualify as a full time student, which will give her more financial aid.

After getting her RN, she could go to work somewhere that would pay for her to continue on to get her BSN.

Super hard call, and I totally get that you don't want to feel like you've let her down or otherwise disappointed her at this late date.

[DawnM]

Do you think you really will need a $30K loan to get a house?  Any chance you can budget for a $0 loan and pay cash?  

And you don't ned $80K immediately, right?  You are simply asking for $20K the first year and that is all they will see as you request a loan for the $30K if you need it?  It shouldn't affect your ability to take out a loan.

However, will it affect your daughter's ability to remain an in-state resident for college purposes if you are moving out of state?

[katilac]

On 5/1/2018 at 5:06 AM, DawnM said:

 And you don't ned $80K immediately, right?  You are simply asking for $20K the first year and that is all they will see as you request a loan for the $30K if you need it?  It shouldn't affect your ability to take out a loan.

1

 

It will affect it less than $80,000 for sure, but a $20,000 loan can certainly have an effect. 

A mortgage calculator can help give a rough idea: https://www.mortgageloan.com/calculator/mortgage-qualifying-calculator

[DawnM]

1 hour ago, katilac said:

 

It will affect it less than $80,000 for sure, but a $20,000 loan can certainly have an effect. 

A mortgage calculator can help give a rough idea: https://www.mortgageloan.com/calculator/mortgage-qualifying-calculator

 

An income of $65,000 and a loan of $20,000 out and wanting $30,000 is not unreasonable.    

[katilac]

7 minutes ago, DawnM said:

 

An income of $65,000 and a loan of $20,000 out and wanting $30,000 is not unreasonable.    

 

No, but it will be taken into account (along with other factors we don't know about, like credit score, debt specifics beyond 'not terrible,' and so on).

I was also wondering if they would assume future loans are likely, like if you take out $20,00 for year 1 of college it stands to reason you are likely to do so in years 2, 3, and 4? I have no idea if that's something they can consider. 

[BlsdMama]

On 4/26/2018 at 6:35 PM, FuzzyCatz said:

Even if your CC is officially past due dates, I would call them.  There is also a good chance you could start winter semester even if you couldn't start fall.  The one my kid dual enrolls at is much more flexible with their deadlines if they have space.

Yes, this - especially if pre-requisites aren't out of the way yet.  If she's a new freshman, she can just fill gen-ed rather than be in a specific program.  Get with an advisor at that school. It also might be that if she is a current student she can get into a specific program easier.

 

On 4/29/2018 at 6:56 PM, ThisIsTheDay said:

 

Super hard call, and I totally get that you don't want to feel like you've let her down or otherwise disappointed her at this late date.

I think we can definitely all relate to this - but, I think knowing what we know as adults, taking a gap year is so much better than letting our kiddos think that $80k is no big deal.  They just don't have a realistic idea of what a payment for $80,000 worth of debt is going to impede.  If she takes that debt on after graduation, will it impact her life in her twenties -like whether or not she has a baby, if she can stay home, her ability to afford her first house.  

On 4/26/2018 at 8:10 PM, dereksurfs said:

There are lots of tough financial decisions to consider as kids approach college age while parents are preparing for their retirement. We've wrestled with these same issues as have our friends. One co-worker has 10 kids and his wife doesn't work. Their kids need to fund their own college in that case and they some how figure it out.

The notion that our kids should go off to a U away from home their freshman year simply because it would be nice or their friends are doing it just cut it for us. Why pay 3-4X+ more in tuition plus room and board simply for an experience? If the money was there and it wasn't a financial burden then great, why not? Otherwise it seems excessive and unnecessary.

We've just had this exact scenario play out.  DS thinks he will lose a $6k scholarship this year.  We are encouraging him to live at home.  He doesn't want to and has very good reasons why to live on campus.   However, wanting something and being able to afford something is very different.  I think maybe my hardest parenting decision up to now might be that we will not fill that gap this year because he'd like to be on campus.  He'll either find a way to afford it or he'll be here in a comfy room with homecooked meals.

HGrace - I know this is so hard and so tied up in emotions and wanting to care and foster our kids well-being and goals.  ((Hugs))

On 4/26/2018 at 6:30 PM, JanetC said:

Assuming you don't borrow Plus until your student has exhausted the lower interest rate federal direct loan program, you're trying to start your child off at graduation with 80,000 + 27,000 = 107,000 in loans. 

The payments would be about 1200 per month for 10 years, assuming you couldn't refinance at a lower rate.

https://money.usnews.com/money/personal-finance/family-finance/articles/2018-02-12/the-problem-with-plus-how-parents-buckle-under-the-weight-of-college-debt

Did you talk to admissions at the community college? The priority deadline may be past, but perhaps there is late registration.

I think this is such an important thing to keep in mind.  We don't want to be cruel (and ask them to delay the beginning of starting dreams) but the cruel to be kind is really what this is in this scenario.  Kids are resilient and we are teaching them a far bigger and more important lesson.