No one told us the REAL cost of the different college loan options.
PAY LESS FOR COLLEGE. What is the WORST Mistake parents in the entire process of sending their child to college?
The mistake that causes parents the most future financial pain is poor selection of a college finance option. There are a limited number of options available for financing college and some are far better than others. "Student Loans," for example, is a phrase that can mean two dramatically different things.
If the student loan is a federal Stafford Loan, it's relatively - but not entirely - harmless (unless your child makes the mistake of extending repayment). Your student can borrow up to $27,000 over four college years (an additional $4,000 is available for a fifth year) and the post-college monthly cost is $310. Total payback is $37,286 so financing $27,000 of college makes college 38% more expensive. While Stafford student loans do make college more expensive - $310 for a new college grad is about
The same cannot be said as regards Private Student Loans, where a lot of "funny business" goes on! Private
the same payment as a Honda Accord LX lease - there is no "funny business" going on with them.
loans can easily double, triple or quadruple the total cost of college since, 99% of the time, they are variable rate with NO caps or 20%+ caps (is now a good time to be in a variable rate loan? And the loan terms can change, mid-loan (at the lender's option). And "fixed-rate" private student loans are not fixed. Almost no one (< 2%) achieves the "Borrower Rewards" like reduced rate, co-signer release, etc. And a "co-signed" private student loan is NO LONGER a "student" loan; it's a Mom-and-Dad loan (co-signers are individually responsible for 100% of the loan terms)!
PLUS (Parent Loans for Undergraduate Students) are not as trick-laden as Private student loans but they can be expensive, too. Cash flow by the Junior year of college is often far in excess of parents' comfort level. At 7.9%, these ten year loans make college 45% more expensive. And the 2.5% fee with each loan (PLUS loans are applied for and taken each semester) is the same as paying 2 1/2 points to "buy down" a mortgage rate to 7.9%. Does that make sense?