Becoming Debt Free in 2009

January 29, 2009

Student Loan Info Needed

Filed under: Dave Ramsey,Debt,Personal Finance,School Loans — ambercouric @ 10:26 am
Tags: ,

I know very little about student loans.  I know that there are those that think they are great and those that think they are the devil.

A friend was asking me some questions and I thought I would just stick the info out for all of you to answer.  If you know of other bloggers who know a lot about student loans, I would appreciate if you either let me know their site or ask them to stop by here and answer.

Here is the situation:

My friend’s son wants to go to a school that is private and in another state.  The total to attend is $47,000.   The EFC calculator gave them a figure of $8,000 for them to pay.  They have no idea what kind of financial aid will be offered but she says they have NO money to pay.  So for a hypothetical situation say he has to borrow $30,000 per year.  That would be $120,000 over four years.  How are the terms set up -over how many years?  What types of loans should she look for?  How much would the monthly payments be if they borrow this huge amount?

Again, I know nothing about student loans but will be doing some research.  Please share your student loan experiences with me.  I would like to be able to have an intelligent conversation with my friend about student loans and what to expect.  She does have the option of paying by taking out a  second mortgage but I think this is a bad idea.

I must also say that before reading several PF I would have said ABSOLUTELY NO LOANS – but with insight from Dog Ate My Finances and Shtinkykat my opinion has lighten up a bit.

I welcome comments from parents, students, or anyone with any opinion on this

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14 Comments »

  1. First, 47K is insane. This better be an Ivy or med school. Plus, you’re missing the most important information. Is that particular school really that much better than a state school? You know what those schools are, and there aren’t many. What will his major be? You know what a reasonable major looks like.

    If he doesn’t have a practical major or isn’t even focused enough to have a moajor, I would just butt out. If he has a silly major, this is all just stupid.

    If he has a practical major at a school strong in it AND the school is better than state schools (a rare combination), it might be worth it if you think he’s not the kind of kid who will drop out. Nobody thinks their kid will drop out, so I would not want to be the bearer of that news.

    Honestly, I would give him drop out stats and the earning stats of his field. Those are just facts. Odds are, those are terrifying against the payments of 120K, some people’s mortgage. Usually, the answer is state school or school with scholarships. But again, depends on the school and the major.

    Comment by dogatemyfinances — January 29, 2009 @ 10:54 am

  2. He should wait and see what kind of financial aid package he gets. My parents EFC was about $10,000, and I went to one of those fancy private schools for less than the cost of state school. The school I graduated from now costs over $40,000/yr, but I was receiving over $25,000 in scholarships/grants at the time of attendance. Every schools is different but some of the better private schools require you to pay only your EFC, and they cover the rest.

    Comment by Stephanie — January 29, 2009 @ 11:08 am

  3. I have a hard time believing that $47k education is worth it, that’s crazy. I had a small loan for my last year of college, it was a federally subsidized stafford loan. There are income limits for qualifying for those and a max you can borrow per year. I’m sorry I don’t know that much, I had a scholarship for 4 years and only paid for my 5th (changed majors).

    Comment by Miss M — January 29, 2009 @ 1:55 pm

  4. My one little nugget of knowledge is the Pell Grant. I don’t know what the max is these days (15 years ago it was $2K, which at the time represented 10% of typical private college tuition+room+board), but the basic qualification to get the full whack is that your parents are not homeowners. Given the state of our economy, a lot more kids will be qualifying on a daily basis…

    Comment by moneymatekate — January 29, 2009 @ 2:03 pm

  5. I am a college student who is transferring from an in-state state school to an out-of-state private school this year. My honest recommendation is to aggresively apply for scholarships and avoid as many loans as possible. Although some find private schools to be outrageous, and sometimes they are, but that does not mean that anyone has to be limited in their choice of schools. My top scholarship finding resources are Ben Kaplan’s book How to Go to College *Almost* for Free and then searching college websites for their list of external scholarships. I have found a multitude that way and even they often link to more.

    Good luck and remember that college should be a time to grow and enjoy, not accumulate debt!

    Comment by Erin — January 29, 2009 @ 3:47 pm

  6. Thanks for the mention! With respect to my undergrad, I went to a state school and my parents took out a PLUS loan. When I was applying for law school, I wish I had access to finaid.org. I did no research and just got my loan with the school approved lender. (I also had no idea that I was borrowing fed’l loan and private loans.)
    That being said, keep in mind that most private schools offer scholarships, grants, work-study programs that, if your friend’s son can get them, may make the tuition competitive with state schools.
    The best resource for grants is http://www.ed.gov. As MMK mentions, there’s the Pell Grant and SEOG (for students whose families can’t contribute much).
    With respect to scholarships, http://www.fastweb.com has a search engine that allows you to search for various scholarships.
    I want to emphasize that students saddled with huge debt at graduation are already behind the 8-ball in life. So I agree with dogatemyfin’s opinion that unless he’s going to a top 5 university, he will be better off going to a state school.

    Comment by shtinkykat — January 29, 2009 @ 11:13 pm

  7. I’m usually in the minority here, but student loans only become bad loans when kids drop out of school or change majors 5 times. As with any other debt, it pays to read the fine print on interest rates, length of loan etc.
    As others have said, check out the on line resources, talk to the schools financial aid department, he may qualify for lots of aid.

    Comment by bouncing back betty — January 30, 2009 @ 10:44 am

  8. Speaking as someone with nearly $160,000 in student loan debt, I’m a big believer in doing whatever it takes to get the education you want/need. Yes, there might be a cheaper, public/state school for him to go to, but if he doesn’t want to go there and won’t be happy there then what’s the point? Sure the school he likes costs more, but if he’ll be happy in the end, then go for it.

    As for tuition, definitely look into scholarships and work study options. With loans, the school’s financial aid office will have a lot of information and you’ll get a better idea of how much you’ll need once the school gets your FAFSA and puts together your financial aid package. I don’t know what his grades and/or SAT/ACT scores are, but there might be an opportunity to get smoe grant money for that. I know my undergrad had a grant/scholarship for people who got over a 1200 on their SATs [this is before the changed the grading system for the SATs].

    My parents paid for a good amount of undergrad but I also had Stafford [government] loans to cover some of it. I paid for all of law school on my own, hence the large debt, and took out both Stafford and private loans to cover everything. They didn’t have Grad Plus loans when I was in undergrad but my understanding, since I took them out in law school, is that it’s a form of a private loan but offered through the government so it can be consolidated with Stafford loans.

    Comment by Lindsay — January 30, 2009 @ 12:41 pm

  9. Ok, so this is all off the top of my head, you may want to verify.

    First of all the limit, last I checked is $5500 in government loans for the student per year. There’s also a lifetime max, but I don’t know what it is and it’s not an issue unless you go more than 5 years or so. Parents can take out federal plus loans up to the cost of tuition I believe, no idea on other limits. Either of these will be better than a private student loan which almost always have sky high rates, really avoid those if at all possible. She shouldn’t need to do the 2nd mortgage, plus loans should take care of her. I’ve never dealt with those, so I could be wrong though. More research is recommended. 🙂

    I have about $15,000 in student loans which comes to about $150 a month in payments. However, they’re not all consolidated so it’s very possible they could come out cheaper if I did so. Terms are generally 10 years with consolidation stretching repayment to 30. There are various options for repayment plans such as graduated and income dependent options.

    That’s the technical data. Now for the soft stuff. Whatever they do, don’t beggar themselves to pay for it, and don’t compromise their retirement either. As someone who is very worried about her mother in retirement, I’d rather a parent concentrate on that. Also, make sure the degree is in line with the cost. If he’s going for a degree in a hard science like engineering, he can probably deal with most student loan costs. A lot of degrees like English and education aren’t really a great idea when combined with huge student loans. Personally, I’d recommend covering the EFC and leaving the rest to him. He can get grants and scholarships and even loans if he has to, and paying for it himself will make him appreciate it more.

    Whatever they do, walk into it eyes open with a plan. Put a limit on the loan amount and monthly payments. Have a plan to pay it off. Don’t just take loans willy-nilly. That’s how you get in trouble. 🙂

    Comment by Slinky — January 30, 2009 @ 5:02 pm

  10. I would have to disagree with stinkykat and the others who say it is okay to take on $120,000 in student loans as long as you finish in a reasonable amount of time. I would say it’s only okay if the degree is going to open up serious financial opportunities. For example, if the money is needed for a law-degree or other degree from an Ivy League school that is going to enable the student to pay back the loans relatively quickly, it makes more sense. If you’re going into an Arts or Languages degree, you have to be realistic with your expectations and know that it’s going to be a lot tougher to pay back the loan. The only other advice I would have is to consider whether the quality of the school will make a big difference to the boy’s opportunities in terms of career opportunities and salary. Normally I am not so practical but when we’re talking about more than six figures, you have to be realistic.

    Comment by megandeputter — January 30, 2009 @ 11:53 pm

  11. As a student who took on stupid debt and is still trying to get out of the trap, I caution your friend on student loans. Getting an education is important, but if there are schools that are better or the same as this school her son wants to attend, it may be better to try and go for there. $47k is an awful lot of money per year for school.

    That said, here are some things to consider.

    1. They need to look into scholarships. Too many people miss this step in their search for funding. As shtinkykat pointed out, a good source for this is http://www.fastweb.com. However, another good source is the high school guidance counselor. They should have information on scholarships available, or at the very least, should be able to point you in the right direction.

    2.) Grants…I don’t know a lot about grants and how to go about getting them, but I know they exist. Get in touch with the library and find out if they have any resources to help with this. Go to the school and see if they have resources to help.

    3.) Financial aid…most schools have some sort of financial aid package available, so you’ll want to see what they offer. In terms of loans, I personally think the government loans are better than private loans because the interest is lower, but you’ll have to look at the options. There are annual limits on subsidized and unsubsidized loans depending on year. Freshman year is something like $5500, Sophomore is like $7500, Junior is roughly $9k, and Senior is $12500. I’m not 100% positive on the amounts, but you can get that information from http://www.studentaid.ed.gov. That site also has a lot of good information about loans repayment options, interest rates, and calculators to figure out payments after school.

    4.) Work/study programs – Campuses have these programs in place to help struggling students pay for their tuition. Look into it and see what you can get.

    5.) Private loans – This should be an absolute LAST resort. These are based on credit, not need, so students may sometimes struggle getting them without the help of a co-borrower. The interest rates are typically higher, as are the fees. Plus, your options of repayment once you’re out of school are less flexible with private lenders.

    Your friend should exhaust all other options before applying for student loans, and even then, they should take only what they need. I would highly recommend they consider a public school with the same curriculum because private schools are expensive for that reason alone, they’re private. The education isn’t necessarily better.

    Hope this helps a little! Good luck to your friend!

    Comment by Kristy — February 2, 2009 @ 1:14 am

  12. 47K isn’t worth it, particularly when it seems that every loan will have to be maxed out to make it happen.

    Obviously wait and see what happens with financial aid, but consider trying to coordinate with the dream school to transfer in after two years at a community college. The student will be able to get most of the core classes out of the way at a fraction of the price while saving to be able to enjoy the dream school for the last two years, plus still have the prestige of that school when looking for a job or applying for grad school.

    Comment by Julianne — February 2, 2009 @ 4:56 pm

  13. Sounds like a lot of debt for an undergrad program. Scary. I’d choose a less expensive option regardless. I’m not as extreme as Dave Ramsey when he says not to ever use student loans. But I do think the ROI for most really expensive undergraduate programs aren’t as good as less expensive programs.

    As far as loans go, when I finish my master’s program I’ll have over $30k in student loans. Like others said, he should go for as many scholarships and government grants as possible (fastweb found me a 5k scholarship, and filling out the fafsa only got me a financial aid package with loans since my previous-year tax return AGI put me over the pell grant or other grant limit).

    He should do his best to stay just with subsidized federal stafford loans. That way he won’t be accruing interest from day one of his college career. Instead, interest will only accrue after he has been graduated 6 months. Unfortunately for me and him, interest rates are exceptionally high right now for student loans.

    Comment by frugalcpa — February 5, 2009 @ 4:49 pm

  14. Let me give you a tidbit from an employer’s perspective. I am in charge of hiring people at the company I work for. Degrees from fancy colleges do not impress me. In fact, fancy colleges and multiple degrees may get your resume tossed aside. It will make you look too expensive to hire so I won’t waste my time going through the interview process with you.

    If the parents have “NO money to pay,” then I would be very concerned about the financial situation of the family and the financial skills this kid has learned from them. It would be a frightening thing to send him out into the world with no financial knowledge, a basic undergrad degree and a mountain of debt. He’d never climb out from under it.

    Comment by Heidi — February 6, 2009 @ 8:43 pm


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