Damn, not eligible for Parent Plus student loan
July 11, 2018 7:16 AM   Subscribe

Although I have good credit now (714 FICO), I have adverse history (which makes me ineligible for a ParentPlus loan at a very low interest rate) and my son needs loans for his freshman year at a very elite college this year. What are my best options?

SallieMae wants 12% interest so that's kind of out.

I have $275,000 in my 401k but won't turn 59 1/2 until March of 2019 so I don't want to do a hardship withdrawal. (Wouldn't my 401k be the best source of a loan: I withdraw and "loan" it to my son where he pay's me back when he gets a job after graduation?)

Have my mom cosign a parent plus loan?

Borrow $15,000 from my mom to pay off my exiting 401k loan to get a bigger ($50,000?) 401k loan to pay back my mom and pay tuition this year?
posted by sweatyone to Work & Money (31 answers total) 4 users marked this as a favorite
I would get in touch with the financial aid office and ask to speak to someone senior there. There might be options that aren't immediately obvious from the outside. Also, financial aid calculations are often reliant on the parent's perceived ability to pay.
posted by mercredi at 7:29 AM on July 11, 2018 [7 favorites]

If it's this difficult, maybe consider whether the elite college is the best choice. A Harvard degree and $100,000 in debt is not necessarily better for your son's future than a UMass degree and $10k in debt.

But to the question you asked: What's the situation with your son getting the loans himself?

The 401k loan you will need to start paying back immediately in my experience (your bank may vary). Additionally, your assumption that your son will be able to pay you back on a particular timetable is not a good one. He may not have a job that allows him to pay you back! Plus your own cash flow will be tied up in repayment til then, AND you may not be able to take out a loan from your 401k if you yourself need it for emergencies.
posted by chesty_a_arthur at 7:33 AM on July 11, 2018 [5 favorites]

You're 58 years old. You can't take out loans to pay for retirement. Your son can take out loans himself to pay for college.
posted by NotMyselfRightNow at 7:34 AM on July 11, 2018 [41 favorites]

I am currently undergoing something similar with my youngest of 3 but because I stupidly took out Parent Plus loans for Thing 2, I do not qualify for any more loans.

Contact the Financial Aid office--aid is generally based on the parent's perceived ability to pay.

But prepare yourself--there may not be any more loans possible for your kid or for you, and then your kid needs to go to a different school which I wish to g*d I had done with Thing 2 who will be paying at least 25% of her income for at least 15 years.
posted by yes I said yes I will Yes at 7:45 AM on July 11, 2018 [7 favorites]

Don’t borrow money from your retirement and especially don’t borrow money from your mother, who is presumably in even less of a position to earn money to replace that expenditure than you are.

As much as it sucks to be disappointed, it doesn’t sound like your family can afford this college. You need to send the kid to a less expensive one, for all your sakes. As it stands, student loans are at a critical point in terms of the amount of debt people are holding, and from a legal perspective, you cannot disburse loans via bankruptcy and the programs for earning loan forgiveness through public service are being reneged upon for current participants, such that they are finding themselves responsible for the debt after all.

Do not load your kid or yourselves with tens of thousands of dollars in debt you MUST work off, just for the sake of being able to say you’re going to Elite College. Unless he is planning to be a superstar lawyer or physician and has the academic pedigree to prove it, then Elite College isn’t going to make a damn bit of difference in his career trajectory, but having an extra $50K or more in loans definitely will. And what happens if you put yourself or your mother in massive debt for his education, then get sick and need caregiving? Everyone winds up bankrupt and in the poorhouse?

Send the kid to community college for his generals and tell him to make sure he gets As. He can use this time to the best advantage to figure out his interests and then choose a solid 4-year institution that would best match his career aspirations. By the time he’s ready to declare a major, he’ll be an excellent prospect.

Yeah, he’ll miss out on “the college experience” as a freshman or sophomore, but in exchange he will not miss out on the adult experience of being able to have a family or own a house someday, and you won’t miss out on the retirement experience instead of having to work until you’re 80. It’s a hard and unpleasant choice to have to make, but reality is reality.
posted by Autumnheart at 8:05 AM on July 11, 2018 [15 favorites]

Just to make sure: Have you treated the university's determination as an opening bid? And then countered? Your counter can be something along the lines of "that won't be possible." Universities (especially old, expensive ones) sometimes have more money available than they initially offer. Push back.
posted by veggieboy at 8:11 AM on July 11, 2018 [2 favorites]

Since he has 4 more years of you trying to fund this from your retirement I would take a deep breath, call the financial aid office or admissions and ask for a better aid package. They might have more work study or grants money available.

I would also ask whether your kid can defer enrollment and enter as a second year or third year student after enrolling at a community college or state school. That might be considered a transfer and not a deferral though, and he might lose his spot and not be guaranteed admission later on.

Its hard to say no to ivies. I do think they are worth the loans IF you have an ambitious kid who is going to grab the opptys, both social and academic with both hands. However other elite private colleges, say your vassars, oberlins, and wesleyans, no offense to those excellent schools, may offer excellent educations, but not the same return on investment. I say this a middle aged person who sees the duke northwestern berkeley mit stanford (there re others, this is not an inclusive list) and ivy oohs and aahs in the workplace. Sometimes also the local big league private u is included because people know what it is. The rest is just ok.

Im happy to be wrong about this. It depends on the industry. But really consider what elite means.
posted by charlielxxv at 8:17 AM on July 11, 2018 [5 favorites]

I hate to tell you this but the idea that your son will be able to pay you back after he graduates is dangerous. The job market isn't great. A lot of graduates aren't getting jobs. And this is fraught with problems.
posted by k8t at 8:27 AM on July 11, 2018 [4 favorites]

I encourage you to call the college's financial aid office. They are unlikely to know that you couldn't get the better PLUS loan and may rebalance the aid package accordingly.
posted by advicepig at 8:36 AM on July 11, 2018 [2 favorites]

1. My dad took out parent plus loans for me under the assumption that I would take over the payments when I could. He borrowed about $25k and I took over the payments at a balance of I believe about $15k. I had my own loans to the tune of about $11k. I transferred from directional state to flagship state for my last two years of undergrad and it was understood that I would pay the difference (tuition and living expenses, as I had been living at home). So, from about my mid 20's to mid 30's I paid off roughly $25k of debt. During that time I took some additional classes and I went to graduate school (on stipend and waiver because I had now learned some lessons). When I would take a class and when I went to graduate school, the loans in my name would go into forbearance (I think that's the term) and I didn't have to make payments on them. I had to keep paying the loans in my dad's name. This was not a lot of money in the grand scheme of things, but it proved a significant financial burden on me at a time in my life when I really needed an extra couple hundred dollars on hand each month. I made it, but on a sleeper sofa with a junk car or no car for a lot of the time with the bare minimum ability to save any cash. Compared to many people, my loans were minimal; they were still quite painful.

2. Elite is Harvard, Stanford, Yale, Princeton. Everything else between that and your only-known-regionally school is basically the same. There are some differences, but not tens-of-thousands of dollars different. If it's U-Mass debt free vs Wash U at $50k per year, I mean come on.

3. You need your money to retire. I am now essentially forty. Let me tell you, one of the most wonderful, selfless, amazing gifts you can give your child is the freedom to not have to pay for you when you are old.

4. ... because you may not realize how expensive life is between the ages of 22 and 35. In this time frame, many people are trying to figure out how to pay for 1) graduate / professional school, 2) house downpayment, 3) daycare for their own kids, 4) college savings for said kids, and 5) their own retirement. Most of us aren't paid that much during this period, especially at the beginning or until we notch a couple promotions and a graduate degree, and a lot of us can only find work in higher cost-of-living areas. Don't add 5) pay for a parent who sacrificed everything so I could go to Haverford or Bryn Mawr or some other over-priced class-signaling pile of bricks.

5. Very very few people cared where I went to undergrad, and once I went to grad school, it was totally and utterly irrelevant.

6. I would caution against community college and shitty local - aim for decent state school - because I also did some community college and shitty local and the education was bad and confidence hit was awful. I am saying, if you have a choice between good school for reasonable cost and prestigious school of high cost, go for good & reasonable.

Your kid is probably awesome-sauce. Please please please be a smart consumer on their behalf. They need your savvy and your bullshit radar detector really badly right now. I want to push you to consider that putting your kid on the hook for 50k and up for a bachelor's is a bad idea.

Put MORE into your retirement account.
posted by everythings_interrelated at 8:42 AM on July 11, 2018 [12 favorites]

"You're 58 years old. You can't take out loans to pay for retirement. Your son can take out loans himself to pay for college."

That's been the plan all along except he has "exhausted" all his federal loan options. He can get a SallieMae loan at 12% percent interest rate though, which I think is absurd.
posted by sweatyone at 9:35 AM on July 11, 2018

He will be going to Notre Dame and has wanted to go there since he was in grade school. His mother told him to apply at Harvard and Yale but, nope, he wasn't even interested in those schools.

I still can't believe he's going to Notre Dame. That's how big it is for me.
posted by sweatyone at 9:39 AM on July 11, 2018

A 12% interest rate loan taken by a college student is still significantly less absurd than a 401K loan taken by a 58 year old parent, or a 58 year old parent taking a loan from a (presumably) 80+ year old grandparent.
posted by NotMyselfRightNow at 9:40 AM on July 11, 2018 [6 favorites]

Congrats, parent, on having an great kid who got into his dream school *and* on having something in your 401(k) as you head towards your 60s. These are awesome accomplishments, but I would not undermine the latter to pursue the former. My thoughts based on your update:

1. If son was truly going to be competitive for Harvard/Yale applications and wants to go to Notre Dame, that's *leverage.* Use it with ND's financial aid office, as others have pointed out.

2. I don't want to dwell too long on considering options other than son starting at ND, because others have said it and said it well. I will say only that based on what you convey here, his particular dream school should be faaaar less difficult to transfer into than, say, the highest-ranked Ivies if he were to look at other options for the first couple of years of undergrad. (And as someone who deferred and then gave up a spot at her dream Ivy for financial reasons: one does get over it, and there are upsides.)

3. If you are going to co-sign, and I suspect you are, have you looked at qualification and what rates you'd get on a Parent Loan from SoFi? A lot of people sing the praises of their ed-related options (and I was quite satisfied with a short-term personal loan I took out through them a couple of years ago at a very good rate).
posted by LadyInWaiting at 10:10 AM on July 11, 2018 [1 favorite]

Are they not giving him any aid at all? If not he just can’t do this. You absolutely cannot allow him to take out a 30k loan at 12% interest. He wants what he wants but he’s basically a child. It’s incredibly irresponsible. If he really must do this, ask him to take a year off to work first. Then he might have some idea of what that kind of money means.
posted by Rock 'em Sock 'em at 10:17 AM on July 11, 2018 [9 favorites]

I'd like to add that the Parent PLUS loans are in a weird category whereby they likely will not count for any sort of loan forgiveness if your son goes into a career that allows for forgiveness (and that loan forgiveness will exist in the future, but chances are that loans your son takes out in 2018 will still count.)
posted by k8t at 10:19 AM on July 11, 2018

To be frank, Notre Dame is a good school and all, but it doesn't have Ivy cache nationwide. In my entire adult life I've never associated ND with excellence like an Ivy. And maybe it doesn't even have substantial cache locally - maybe it is different immediately in Indiana, but even in my experience in the broader midwest, it doesn't have any more cache than any other good university. Maybe it has a decent alumni network, but is it really worth that much? Certainly it doesn't have such cache that it would be a wise investment to go into this much debt.

Step 1: If I were in your shoes I'd call the financial aid office and be honest with them - you can't get enough federal loans to pay for this school. You're considering having him not go. See what they say. It is possibly that they'll grant him more aid. But you gotta talk to them. They are far more flexible than you think. It would have helped a lot if he had had offers from other places though.

Step 2: Start thinking about community college. Call the advising offices and find out what community college agreements are in place with ND. One of the issues for many transfers is that their community college credits don't transfer easily. Many schools have pretty clear agreements with the local community colleges that BIO 100 at one place is the functional equivalent of BIO 102 at another. This might seem to break your son's heart right now, but this will be so much better for you son in 15-20 years.

(My expertise: I'm a faculty member at a flagship state university, I've been on multiple financial aid advisory committees, I have a shit ton of student loan debt that gravely impacts my life.)

If Metafilter isn't doing it for you, there is a very good subreddit worth posting in.
posted by k8t at 10:28 AM on July 11, 2018 [11 favorites]

Let me start by saying that I can see why you are proud! Notre Dame is awesome, and your kid is awesome. As someone working my way through six figures of student loans from a “prestigious” school, though, I am begging you to figure out an approach that does not involve you or him taking out more debt than is absolutely necessary, both for his sake and for yours. I am halfway through my debt, make almost $300k/year, and yet I still feel absolutely crushed by my remaining debt. It is a constant source of anxiety. Fortunately, I saddled myself with it (grad school) and can only be pissed at myself, so it has not ruined my family relationships. If my parents had guided me into taking on this debt load at 18 because they perceived the school as prestigious, I don’t think I’d be speaking to them anymore. I would feel like they prioritized their pride in the work they did parenting me over my best interests. I know I would feel that way because I feel that way about my own choice to take out the loans. I don’t say that to scare you. I say it because I wish someone had said it to me before I took out the loans.

The good news is that there are a lot of options for minimizing costs:

— Call the financial aid office. Today. Ask not only what loans he is eligible for but also—and far more importantly—what scholarships and work study he is eligible for. Make sure you know what scholarships/RA positions he can position himself to take on as a sophomore or junior, as well.
— He should be applying for every small scholarship he’s eligible for, both locally and nationally. In college, I had an annual $250/year scholarship through a local foundation. That covered my books each year. It wasn’t a huge amount, but it helped. I wish I’d applied for more of them—I only applied for that one, because I was a lame-o grouchy 17-year-old and my parents didn’t push me that much. I say go for the small ones because (i) most people don’t and (ii) it’s July, so the big ones are probably gone.
— I see other folks have mentioned community college. I will say that I did community college classes the summer before starting college and LOVED them. It was really good for me to be in classes with non-traditional students. They taught me more about what the real world was like than did my four years at my fancy college. It is an awesome option—and because it is cheaper and because classes are more flexible, he can work and save up money. I was fortunate enough to go to a great community college, though, and it’s possible you don’t have local access to one. It’ll still be cheaper for him to move to be near a great community college and spend his first couple years there.
— Can he do a January start and work for three months doing something that pays $25-50/hour? Anecdotally, I made $35/hour tutoring SAT classes in college, and that was a decade ago. You clearly have a really smart kid, so I’m sure he can find a gig that pays 4-5x minimum wage.
— Can you pick up extra shifts or overtime? Any side hustles? Anything you can sell? Even if these don’t net out to a lot of money, I think they will help maintain the “my parents did everything they could to cut my costs because wow do they love me” narrative that you want this kid to leave this college with.
— Finally, I hate to say it, but if he has Harvard/Yale stats, he should seriously consider sitting out a cycle and applying there. Not because they are better schools than ND but because they have better need-based financial aid programs than ND. “Need” is functionally “doesn’t have a trust fund” at those schools, and the aid packages often cover housing and books, not just tuition.

I just want to reiterate: your kid is awesome, and you are awesome for being proud of your kid. I hope I have not overstepped; these are the steps I wish I’d taken in hindsight. Best of luck to your whole clan!
posted by suncages at 12:03 PM on July 11, 2018 [17 favorites]

There is also the possibility of going to Notre Dame for grad school. They have an excellent law school, for example. Definitely agree that you should be extremely proud. But the financials aren’t quite working right now.
posted by Rock 'em Sock 'em at 1:19 PM on July 11, 2018

Some 401ks plans allow you to take a loan from the 401k itself. E.g., borrowing from yourself. I'd look into that before contemplating early withdrawal penalties or usurious student loans.
posted by qxntpqbbbqxl at 2:02 PM on July 11, 2018

I agree that your best option for affording this is squeezing the school for more financial assistance. None of your loan options have any objective merit.

That said, you sound like someone who is intensely interested in your child's well-being and happiness. Please, please please listen to all the people here speaking to you from your child's future.

The two most stressful things in my life for the past few years have been the student loans I am STILL paying off 20 years after graduation and my inability to help my father financially before he died because I just didn't have the money and he didn't have the savings to get him into a good facility that could care for him appropriately. Those two things consumed my life.

My student loans are still a huge burden on me. I don't own my own home because of it. If I wanted kids, I'd be out of luck, because I wouldn't be able to afford them. I wouldn't be able to afford a decent wedding. With the hundreds of dollars I pay the government every month, I could take a fabulous vacation every year - instead, I went on my first good vacation two years and it'll be a year or more before I can do it again. I have to look at and account for every penny I spend and weigh it against my student loan debt. My own retirement fund is sickly and insufficient; I am absolutely dependent on social security still being around in 20 years. Otherwise I have to either work until I die - and that's if I'm lucky enough to stay healthy enough to work.

Please don't make your kid happy right now at the expense of his happiness as a grown-ass man (one who, by the way, will absolutely understand where things went wrong in his life and wish someone had helped him make better choices).
posted by invincible summer at 2:53 PM on July 11, 2018 [3 favorites]

If you loan the money to the kid expecting to be paid back, good forbid the worst happens, but you might consider life insurance on them to cover what they owe you, until a time period that it's mostly paid off.
posted by TheAdamist at 3:46 PM on July 11, 2018

There are two recent posts over on the blue about education and student loans that you might benefit from reading. The second one in particular is a pretty harrowing account of someone who went to a non-Ivy but well-known private school and the impact that the debt for that school has had on their family.

I'm 42 years old, and the calculus around what school to attend has really shifted from when I was in high school. The old approach of "go to the best place you can get into and we'll find a way to afford it" is now a path to a lifetime of non-dischargeable debt that constrains every choice and opportunity.

There is lots of good advice above, and I would just add to think carefully about what your son's education plans are and whether they are likely to lead to a well-paying job as a key deciding point in whether to take on significant debt, and take particular note of the person above making solid six figures who feels the burden of loan debt.
posted by jeoc at 4:13 PM on July 11, 2018 [4 favorites]

the programs for earning loan forgiveness through public service are being reneged upon for current participants, such that they are finding themselves responsible for the debt after all

Just to prevent anyone from reading this and panicking, this is absolutely not true. There is a very small group of people who worked for private (non-501(c)(3)) nonprofits whose eligibility determination was overturned because the prior administration decided that the employer had to offer the qualifying public service as its primary purpose. No one else was affected. It is certainly possible that the program may not continue to be funded for loans originated in the future at some point, but it is very unlikely, even under the present administration, that there will be any attempt to make this retroactive. The situation is bad enough and borrowers are stressed enough without nonsense rumors being circulated.
posted by praemunire at 1:08 AM on July 12, 2018 [1 favorite]

Finally, I hate to say it, but if he has Harvard/Yale stats, he should seriously consider sitting out a cycle and applying there. Not because they are better schools than ND but because they have better need-based financial aid programs than ND. “Need” is functionally “doesn’t have a trust fund” at those schools, and the aid packages often cover housing and books, not just tuition.

I just wanted to repeat this for emphasis since it seems to be largely unknown that if you can gain admission to an Ivy tuition will be reduced on a need based basis, here’s an article online with a bit more specifics, including these examples:
Stanford offers free tuition to families with incomes up to $125,000 per year
Dartmouth offers free tuition to families with incomes up to $100,000 per year and “typical” assets
MIT offers free tuition to families making up to $75,000 per year
Princeton offers free tuition for families making up to $120,000 per year
Gaining admission to these schools is not easy for most people, but if your kid is a high achiever I think he’s better off going for an Ivy rather than a solid private school like ND. There’s a lot of non academic benefits to an Ivy (alumni network) and it may very well be less expensive.
posted by rainydayfilms at 3:54 AM on July 12, 2018 [2 favorites]

Data points:
All the replies are invaluable to me.
I just discovered that it's possible to get a parent plus loan even though I have adverse history.
I will call the financial aid office today.
My company allows me to get a 401k loan with the interest going back to me. I believe this is the best type of loan in my world.
I believe it's a parents duty to contribute to college education but unfortunately my spouse (and I) wasn't engaged in the proper planning. Thus, I want to contribute as much as I can in the present without harming my 401k significantly.
My question wasn't about the value of a college education, whether it be an elite college, ND, or even a community college.
ND has already given my son a very significant need based discount on tuition but he cannot afford his share without loans for most of it.
posted by sweatyone at 6:22 AM on July 12, 2018 [1 favorite]

Try speaking with your local ND alumni chapter and asking about scholarships. My son got a merit scholarship to ND for ~$3000 IIRC (on top of what he got from ND directly). He didn't end up choosing ND, but it would have brought down the cost to less than our State school (we are OOS for ND).

I also agree with calling the Financial Aid office and telling them your situation. You can also write a letter asking them for more $.

You don't mention if you own your home, but equity loans have lower rates.

Last but not least, your son should be applying for every scholarship available. That may also mean working summers at jobs that offer college assistance or scholarships to their employees.

Good luck!
posted by jraz at 7:00 AM on July 12, 2018

My company allows me to get a 401k loan with the interest going back to me. I believe this is the best type of loan in my world.

Given that this is my third response to this question, I feel like I'm at risk of beating a dead horse about how bad an idea this is, but I want to make sure you're fully aware that a 401K loan is repayable immediately if you ever leave this employer:

At the time you take a 401(k) loan you pay no taxes on the amount received. However, if you don't repay the loan on time, taxes and penalties may be due. If you leave employment while you have an outstanding 401(k) loan, your remaining loan balance is considered a distribution at that time, unless you repay it in full within 60 days. If the loan is not repaid according to the specific repayment terms than any remaining outstanding loan balance can be considered a distribution. In that case, it becomes taxable income to you, and if you are not yet 59 ½, a 10% early withdrawal penalty tax will also apply.

That means that if you take a $50,000 loan from your 401K, as you've said you're thinking about doing, you either have to stay working until that loan is fully paid back (age 70? 75?), or be prepared to pay taxes on the amount in the year you stop working.

I know your question is about student loans for your son, but since you've brought your retirement accounts into it, you need to hear some tough love: You're 60 years old and don't have nearly enough saved for retirement unless you've got some Scrooge McDuck Money Pit that you haven't mentioned. At $275K and a 4% safe withdrawal rate, you're looking at having $11K a year in retirement income, plus social security. If you drop that down to $225K, you're only looking at $9K a year.

60% of people have to stop working before they planned to - layoff, illness, etc. If you take a $50K loan and then have to stop working, your federal tax bill on that loan will be at least $8,354 - essentially your entire retirement income in that year. How will you then survive? Take out another loan?

Look, you want to do right by your kid. I get it. Here's how you do it: You tell him to take out that 12% loan from SM, work during the summer months to try and put some money against it while he's a student, and then refinance the loan with SoFi or someone else to a significantly lower rate as soon as he graduates. At the same time, you need to focus on yourself and growing your retirement account.

If you think not paying for him to go to college is a burden, it's nothing compared to him having to financially support you through your retirement while he's trying to launch himself after graduation.
posted by NotMyselfRightNow at 9:14 AM on July 12, 2018 [3 favorites]

If you're set on spending this money, the best bet is the Parent Plus loan with your mother as a cosigner. Double check this, but if you take out a Parent Plus loan, you can repay it at the point at which you can withdraw from your 401k without taking the penalty. You'll have to pay the origination fee for the parent plus loan, but that won't be as bad as the possible taxes on the 401k.

You really can't let an 18 year old take out 12% interest loans. I say this as a parent; I understand that you want to sacrifice for your kid and I have to agree---if the only other option is 12% loans. This might be a big big risk for you but I don't think the answer is saddling your kid with that ridiculous interest rate. It's also a huge waste of money for you to take money out of your 401k right now. So a Parent Plus loan is your best bet, at least for this year's loans.
posted by Rock 'em Sock 'em at 11:53 AM on July 12, 2018

To be clear, what I propose is:

Take the Parent Plus loan now, with a cosigner if necessary.
You can repay that loan with your 401K if/when that becomes an option.

I see that you can get the Parent Plus even with an adverse credit history. That is great. Good luck to you and your son!
posted by Rock 'em Sock 'em at 11:56 AM on July 12, 2018 [1 favorite]

Qualified and took the ParentPlus loan and he moves in tomorrow!
Will be obtaining life insurance for him until his loans are paid off or I'm not cosigned to them.
Thanks to everyone for contributing.
posted by sweatyone at 1:01 PM on August 16, 2018

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