Paying for College
Hi Terry:
Our oldest son is a sophomore in college, we have a 2nd son that will be a freshman in the fall and a 3rd son that will be a junior in high school. With a lot of saving and sacrificing we have been paying out of pocket for college tuition. But we wanted to see our options with taking out a loan. We made an appointment with a law firm that specializes in college federal loans. What they said surprised both my wife and I.
• They said to take out federal loans for 100% of the cost each year.
• The loan should be in the name of the parent that makes less money.
• Consolidate the federal loans.
• The payment would be based on the income of the parent whose name is on the loan.
• After 10 years the balance would be forgiven.
• We would have to pay tax on the amount of the loan that is forgiven.
Have you heard of this type of system? If so, what are your thoughts?
We have heard before that any college loans should be taken out in the student’s name and not the parents.
Terry Says
I don’t know where you got this advice, but it stinks!
Keep paying as much as you can, and don’t leave anyone with debt if possible.
If debt is required, do take out Federal Student Loans, not Parent PLUSloans, because the rates on the student loans are that much lower.
There is only one caveat. If one of you is –and plans to be — a long-term public service employee, and if you pay the higher rate and take out Parent Plus loans, you could enter the Public Service Loan Forgiveness program, consolidate your FEDERAL loans only, at a lower rate, and then pay that new monthly amount for TEN years. At the end of those payments the balance of the loans could be forgiven, unless that law changes.
All other Federal loans, other than Public Service Loan Forgiveness Plans, can have their balance forgiven after 25 years of payments, even if the payments are lower based on an income based repayment plan.
That’s just the only way out, other than paying off the loan principal early! So why do it in the first place?
You are on the right track, and I hope you are also able to save for your retirement. At least you don’t have to worry about paying for weddings!!
PS If you ARE going to apply for Federal Student loans, you’ll have to file the FAFSA form. Search for info on that at
https://studentaid.gov/h/apply-for-aid/fafsa
