07.02.08 | Private Loans vs. Parent Plus Loans
So, your child wants to go to that private University costing $45,000 per year and you’re wondering how on earth you’re going to pay for it.
They have worked hard thru High School, received a merit scholarship, have taken their PSAT, SAT, & ACT exams to prepare themselves and are excited about this new chapter in their young adult lives.
You on the other hand are a little less excited, and not because empty nest syndrome has set in prematurely. How am I going to pay for this you are thinking to yourself? It is the million dollar question. I just hope the million dollar question doesn’t cost me a million when my son is of age in 18 years.
Here are a few things to consider. FFELP Parent Plus loans are currently fixed at 8.5% which is really high in relation to private student loans, which many can get in the mid 6% range with good credit these days. The fed funds rate has dropped precipitously over the past several months which have spurred these lower private interest rates and has swung the pendulum in favor of private loans for many.
Both loans can be repaid after the student graduates, which are nice benefits, but you are only delaying the inevitable while interest continues to capitalize. If you can at least afford to make interest only payments while the student is in school it would certainly be in your best interest.
Another thing parents often ask me is who is responsible for the payment on these loans when the student graduates? The parent plus loan is linked to the parent’s social security number, so the parent is responsible for that one. The private student loans are generally in the students name with the parent listed as a co-signer. This would be the student’s responsibility and after 36-48 months of on-time payments you can get your named removed as a co-signer.
The parent plus loan also holds a tax benefit. You can write off the interest provided you do not earn more than $70,000 if you are single and $140,000 for joint filing. On a side note many parents with a joint income exceeding $140K are actually looking at home equity loans. Interest rates are so low on equity loans currently and they can write off the interest at the end of the year.
As you can see you have a few options, but only you know what is right for you. Happy spending.
Federal Student Loans: Your Best Financial Aid Options
Stafford loans from StaffordLoan.com have a fixed interest rate as low as 5.60% and can be used to cover tuition and other school expenses.
Federal PLUS Loans from ParentPLUSLoan.com allow parents to borrower up to the cost of attendance for their undergraduate children.
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whats a student to do that has no cosigner or parents to cosign but still needs loan to manage the living expenses books ect…
July 9th, 2008 | #
Is this student loan attainable for a private Christian college?
July 13th, 2008 | #
very good
October 27th, 2008 | #
What if the parent is not the parent whoclaims the child on their taxes; can the loan still be taxed deductable?
December 30th, 2008 | #
Yes. The parent who has the parent plus loan in their name is eligible for the tax deduction regardless of whether they are claiming the student on their taxes. The maximum education-loan-interest deduction is $2,500. Income limits and other conditions apply to the education-loan-interest deduction.
January 5th, 2009 | #
What if you cosign for your boyfriend’s child and the child who promised to pay defaults? Can I as a person not related but the cosigner on the student load who has been making the loan payments for the last 2 years write this off on my taxes?
January 6th, 2009 | #
If the lender sends you a 1098e form (interest deduction notification) than yes. Usually these forms will only go out if you have reached $600 in accrued interest on the year. You should also consult a qualified tax attorney.
January 23rd, 2009 | #
What I find amazing is the attitude of a lot of college aged folks these days. Somehow they believe a college education is owed to them by their parents even if they can’t afford it. What ever happened to the co-op program. It takes 5 instead of 4 years to graduate but you still have your college education. All you have to do is work a quarter go to school for a quarter and repeat as many times as necessry, or how about night school? You have a regular job during the day and go to night school. I went to night school part of the time and it is not the most fun ever, but you still end up with a degree. You see these ads on television where the kid is all excited because they have been accepted into a nice college. Then they get a sad downtrodden look on their face and say I know you can’t afford to send me there. I guess I won’t be able to get a degree. How very sad they don’t feel like working for it. Last week on television a 17 year old girl was accepted into a state university with a scholarship. She did not want to go there because it was to close to where her family lived. She wanted a private school in another state, even though it cost about ten times as much for her to go there. It did not seem to matter to her she was going to break her family financially. How very sad and self centered. The work ethic in this country is sure not what it once was, and the younger generation has become known as the me generation. It did not bother her at all she might brek hr family financially as long as she got what she wanted. This I am sad to say is a very self centered attitude.
April 22nd, 2009 | #