Student Loan Question

[GRG a/k/a goldenrulegirl]

So, I was looking over ODS' financial aid package which includes some unsubsidized student loans (he also got a huge chunk in scholarships and we plan to cash flow the balance although we might also have him take out some smaller loan amounts so that he has some skin in the game).  

I don't understand how kids graduate from college (i.e., not grad school) with $100k or more in loans.

If I read correctly, it seems there is a $31k total limit to a combination of subsidized and unsubsidized loans that a kid can borrow while in college.

Where do the kids who are drowning in debt upon graduation get the rest of those loans?  Do colleges offer their own loans?  Do you go to your local bank and take out a student loan at a market rate?  

How do some kids end up with so much student loan debt?

[Deleted]

Private loans. 

[GRG a/k/a goldenrulegirl]

May 22, 2015 9:24:59 GMT -5 minnesotapaintlady said:

Private loans. 

?

From local banks?

[GRG a/k/a goldenrulegirl]

And if from a bank, who loans an 18-22 year old kid that kind of money -- and unsecured?

[Deleted]

Banks, credit unions...they all are in the student loan game.   I just went to our small local credit union website and looked what they had.

altra.studentchoice.org/

[midjd]

Do colleges offer their own loans? Do you go to your local bank and take out a student loan at a market rate?

Yes (sometimes) and yes. (Although the "market rate" for private SLs is usually way above the prime rate, despite their non-dischargeability, since most 18yo college students don't have great credit or income). 

[chen35]

A lot of private loans require a co-signer. Typically the parent.

[Deleted]

May 22, 2015 9:26:55 GMT -5 GRG a/k/a goldenrulegirl said:

May 22, 2015 9:24:59 GMT -5 minnesotapaintlady said:

Private loans. 

?

From local banks?

Sallie Mae is one of the primary offenders.

Once we did the scholarship searches, we were barraged with loan offers from everyone under the sun. Sallie Mae was still sending them to me 4 years later!

One kid my DD went to school with, the family had a very high EFC, but they refused to help him with costs. He had to take private loans to cover the parent gap. He came out of school with over $100K in loans.

But what's the difference whether it is loans or cash-flowed? We paid the same to attend college as he did, I just paid most of it instead of having her take large loans. 

[Deleted]

May 22, 2015 9:27:35 GMT -5 GRG a/k/a goldenrulegirl said:

And if from a bank, who loans an 18-22 year old kid that kind of money -- and unsecured?

Since they are student loans, they are not dischargable in BK. They are lifetime loans that can't be eradicated, so they get paid back eventually.

[Ombud]

GRG a/k/a goldenrulegirl, I'm so upset with myself. GS1 missed one deadline so I'm cash flowing 6k this year too) 1k down, 5k to go). If he missed them all, I'd be looking at 25k, and at that level it would be part loan (my FICO not his). My 'plan' is for him to graduate owing 15K subsidized .... just a little 'skin in the game'

Reminds me I've got to call USAA and get his secured $250 Mastercard set up

[Deleted]

May 22, 2015 9:32:17 GMT -5 @rockit said:

May 22, 2015 9:27:35 GMT -5 GRG a/k/a goldenrulegirl said:

And if from a bank, who loans an 18-22 year old kid that kind of money -- and unsecured?

Since they are student loans, they are not dischargable in BK. They are lifetime loans that can't be eradicated, so they get paid back eventually.

While charging 4-7% above prime and accruing penalties and late fees.  It's a sweet deal for them even if they have to wait until you die and take it from your estate.

[GRG a/k/a goldenrulegirl]

I knew knew student loans were a huge burden for many college kids, but I don't think I realized (because I wasn't at that stage in life yet) that it was private loans the kids are drowning in, not the more reasonable federal loans.

And, wow, the parents are stuck, too??!!

While we don't have a chunk tucked away (because DH only started making "real" money recently and because we live in a VHCOLA), we always sort of assumed our kids wouldn't qualify for financial aid (because DH's salary "looks" high on paper).  We were correct -- ODS got nothing but unsubsidized loans, and in looking at those, we couldn't figure how kids were borrowing more than $31k total.  

Oy.

[Deleted]

I think the federal Perkins loans are still out there, but they area need-based. That could add another 4-5K/year.

[Deleted]

And once the kids go to Graduate School, then there is a much higher limit on the loans they can take. 

[shanendoah]

Both the Perkins and the Stafford (sub and unsub) have always had limits on them. Those limits are based on year in school - freshman/sophomore/upperclassman/graduate - and there's a lifetime limit, as well.
But you can add in the PLUS loans, which the parents are technically responsible for, but often the "deal" is that the kid will actually pay those back. And then there are the private student loans.

Private student loans really suck because they come with the bad parts of being a student loan - can't be discharged in bankruptcy - without the good parts - federal student loans are 100% non-transferrable. If I die, C is in no way responsible for my student loans, even if we took them out while married. If we get divorced, he cannot be held in any way responsible for my student loans. If I become disabled, my student loans are forgiven. None of that happens with the private student loans, mostly because they make your parents co-sign, so suddenly, no matter what happens to you, your parents are on the hook.

I have told my young cousins that if they need to, take out the max in federal loans, but to NEVER touch student loans that don't come from a federal program. If they need a couple k more, they should talk to me and I will "loan" (really gift, but won't refuse an eventual payback) them the money.

[Deleted]

It used to be that Federal loans could cover most, if not all, a students need, but the Stafford/Perkins limits have not kept up with the crazy increases in college costs, so the private and Parent Plus loans took off. 

My goal is to try and get my kids through with no debt, but if we have to take on loans, I'm not opposed to the federal ones and keeping within those limits.

[skubikky]

May 22, 2015 9:58:01 GMT -5 GRG a/k/a goldenrulegirl said:

I knew knew student loans were a huge burden for many college kids, but I don't think I realized (because I wasn't at that stage in life yet) that it was private loans the kids are drowning in, not the more reasonable federal loans.

And, wow, the parents are stuck, too??!!

While we don't have a chunk tucked away (because DH only started making "real" money recently and because we live in a VHCOLA), we always sort of assumed our kids wouldn't qualify for financial aid (because DH's salary "looks" high on paper).  We were correct -- ODS got nothing but unsubsidized loans, and in looking at those, we couldn't figure how kids were borrowing more than $31k total.  

Oy.

Are you going to be paying the interest on his unsubsidized loans as it occurs or are you going to let it accrue?
I'd keep an eye on that if I were you.

[Ombud]

Do I have this right? He was eligible for:

Subsidized = Perkins (3.5k), no interest until 6m after graduation, good deal

Unsubsidized federal = Stafford (2k), accrues starting now so no good if I can cash flow

[Deleted]

May 22, 2015 10:41:06 GMT -5 Ombud said:

Do I have this right? He was eligible for:

Subsidized = Perkins (3.5k), no interest until 6m after graduation, good deal

Unsubsidized federal = Stafford (2k), accrues starting now so no good if I can cash flow

Perkins has a 9 month grace period.  No interest until repayment begins.

[myrrh]

May 22, 2015 9:33:54 GMT -5 Ombud said:

Reminds me I've got to call USAA and get his secured $250 Mastercard set up

Ombud you should ask if USAA still does the student credit card. I got one at age 18 or so, unsecured, $500 limit, no annual fee. I've never cancelled it as it's my oldest card and they've never cancelled it either though I don't use it anymore. Occasionally I get replacement cards, wonder if I should do something about it, shrug and stick it in a drawer for another few years.

[shanendoah]

Perkins loans are different from Stafford loans. Perkins loans have a stricter need base than even subsidized Staffords and a lower interest rate. No interest accrues until after your grace period. And as MPL said, 9 month grace period.

Stafford loans come in subsidized and unsubsidized. Subsidized are for undergraduate programs only and are income based, no interest accrues until after your grace period, which is 6 months after you leave your program.
Unsubsized Stafford loans have the same interest rate as the subsidized loans at the undergraduate level. All graduate level loans are unsub, and they have a slightly higher interest rate. You are not responsible to make a payment on principal until 6 months after you graduate/leave your program. However, interest does accrue. When I worked in student loans 20 years ago, you could choose to have that interest capitalized or not. I don't remember that option when I took out my last loan in 2007/8, but that could be a memory issue as much as a they no longer give you the option issue.

This is a really great site for information. You need to scroll down quite a bit for the loan limits and interest rates, but it's all there.

[Ombud]

Thank you. This is confusing. I cash flowed my kids but I made more then. I'll cash flow 6k + pizza / cell $$ but don't want to do it all

myrrh, called USAA and they still call theirs a student card ($300-2000 limit).

[imanangel]

May 22, 2015 10:51:26 GMT -5 myrrh said:

May 22, 2015 9:33:54 GMT -5 Ombud said:

Reminds me I've got to call USAA and get his secured $250 Mastercard set up

Ombud you should ask if USAA still does the student credit card. I got one at age 18 or so, unsecured, $500 limit, no annual fee. I've never cancelled it as it's my oldest card and they've never cancelled it either though I don't use it anymore. Occasionally I get replacement cards, wonder if I should do something about it, shrug and stick it in a drawer for another few years.

Oh thank you for posting this! I am going to call and ask them.  My son is going off to college in a different state than us, I want him to have a credit card with a small limit, in case of emergencies. I also want him to start building his credit, responsibly. We were trying to figure out how to do it!

[garion2003]

May 22, 2015 9:27:35 GMT -5 GRG a/k/a goldenrulegirl said:

And if from a bank, who loans an 18-22 year old kid that kind of money -- and unsecured?

Generally a private lender would require a credit worthy co-signer.

[garion2003]

May 22, 2015 10:41:06 GMT -5 Ombud said:

Do I have this right? He was eligible for:

Subsidized = Perkins (3.5k), no interest until 6m after graduation, good deal

Unsubsidized federal = Stafford (2k), accrues starting now so no good if I can cash flow

I would say there's not Perkins there, he's been offered the maximum first year Direct (formerly Stafford) Loan limits.

A first year, dependent student, may borrow up to $5,500, of which no more than $3,500 can be subsidized.

[alabamagal]

Re student credit cards

DD got a USAA credit card in 2008 when she started college but that was before CARD act. My two younger kids could not get them.

My boys got student credit cards a couple years ago through Citi and Discover. It might depend on what year you are to get approved. They listed $4k income from part time jobs and started with $500 limits. Discover raised limit a couple times.

I know my son who just graduated built his credit score pretty high this way and then when he got job offer he was able to get a USAA card with a high limit because of his good score.