February 13, 2018
First of all, thank you so much for spending your time and efforts on this web site. Found you through Google search, and out of several results, found yours most organized and helpful.
My questions are:
1. We have 19 year old freshmen on BU university which charges $71 k for tuition, room and board (OUCH!!!). For first semester we took Home equity loan, and for second Direct parent loan, serviced by Nelnet. We were assigned into 10 year repayment pan, if we were to ask for longer repayment term, would it apply to future direct parent loans we would take with them? For example, we current have $25k outstanding, if we ask for longer repayment than 10 years, would next loan automatically go under same time span?
2. We have 15 year old at home, if we were to roll total loan for first child after she is done with her 4 years into income contingent repayment plan would it stop us from taking loans for second child, or do we have to wait for both of them to be done before we combine both loans into one repayment plan? In other words, once repayment amount comes close to 20% disposable income and we switch to income based repayments, can we ask for new, additional loans?
3. Is there a max amount you can take with Parent plus?
Thx in advance
May 3, 2014
First of all, thanks for stopping by and thanks for the kind words.
Before I directly answer your questions, I feel like I’d regret not saying something more generally first. BU is an excellent school and I have nothing but respect for parents who will do whatever it takes to care for their children. But when I read your questions the first time it made me really nervous. That 71k per year will be likely be the low end of college costs for your first daughter. The next three (or four) years will get progressively more expensive. If the second child wants to follow the oldest to BU, it will more than double the total debt.
I think stretching financially to help your children is to be commended, but mortgaging your financial future is dangerous. You want to provide for your child now, but what if it means your child will have to provide for you in your later years? I wouldn’t dare presume to tell you what the appropriate thing to do is in this situation, but I would highly encourage your family to explore all available options and possible outcomes.
On to the questions…
1) If you change repayment plans, the next loan may not have the exact same repayment plan. It is even possible that another federal loan servicer will handle the loan. However, once you get that first bill for any new loan, you can always enroll in your preferred repayment option.
2) I haven’t personally had a Parent PLUS loan, but as far I know, having an existing consolidated loan should not prevent future borrowing, but rules can change (see below). Whenever you are unclear about something like this, I recommend researching the issue so you are familiar and then confirming your finding with your loan servicer. Independent research can be wrong, and loan servicer customer service reps have been known to be wrong, so double verification is the ideal route.
3) At present, there isn’t a limit to Parent PLUS borrowing (except for the yearly total cost of education limit). However, I am aware of proposed legislation that would limit total Parent PLUS borrowing. More on that here: https://www.usnews.com/education/blogs/student-loan-ranger/articles/2017-12-13/potential-effects-of-prosper-act-on-student-loans The PROSPER Act would both limit yearly borrowing and total borrowing. Each year we see lots of proposed student loan legislation that never becomes law, but the possibility of a law change is something to be aware of and plan for.
February 13, 2018
1. So, we do not have to take 10 year repayment plan? Is it enough just calling service and asking to be put on longer term? Then, for next semester, go through same process again?
2. You said check bellow, but there is no attached link for rules under second question? Any other ideas for where to research?
Agree that kids can be darn expensive, but if I understand repayments completely, worst case is we will be paying 20% of our income for rest of our lives, correct? What happens in case of divorce, is debt carried by parent who signed on loan or is it shared?
Thank you again for your time.
May 3, 2014
1) No. The 10-year repayment plan is not the only option, one option with lower payments that won’t require consolidation would be the extended repayment plan, which is a 25 year plan. More here: https://studentaid.ed.gov/sa/repay-loans/understand/plans/extended As far as enrollment, your loan servicer will be able to tell you the exact procedure… it should not be time consuming or difficult.
2) The see below was in reference to my answer to your third question. I was using that as an example of how the President and Congress can potentially change the rules. As far as research, I’d suggest trying to keep up to date with student loan news and once or twice a year doing a deep dive to see if anything has changed in your life or the rules that would alter your current strategy.
One other thing to keep an eye on with the acceptance of 20% of your income for life: there is loan forgiveness after 25 years of ICR, but the forgiven debt is considered taxable income by the IRS. That means if you have 300k of forgiven student loans, you will be taxed as though you had 300k of extra income that year.
As for the divorce question, that isn’t something I can answer. I can say generally that the student loan is a contract between the borrower and the government, but all states have different rules for a divorce, and the terms of each divorce decree vary greatly. A local divorce attorney is your best bet for a specific answer.
February 13, 2018
Aware of loan forgiveness tax hit, but once those 20 (or 25 years) expire, if I am still alive, will be on Social Security, and max the government can take is 20% of it…
Once more, thank you for dedicating your time and efforts on this site.
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