Govt Loans vs. Loans from Parents for college

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caseynshan
Posts: 229
Joined: Wed Jan 19, 2011 1:11 pm

Govt Loans vs. Loans from Parents for college

Post by caseynshan »

We have a system where we pay a certain amount for college and then after that, kid is 50% responsible.
One kid went to cheap school and is able to get by with job, no loans.

Other kid is going to more expensive school. (and the reasons make sense.. I don't want to argue community college, vs out of state etc.. decision is done)

So the 2nd kid will need to take some loans.
The question is a financial one.. regarding source of loans.

3 options.
1. loan from the 'bank of mom and dad' (mom and dad can handle a default)
2 Govt. Direct unsubsidized loan.
3. Govt. Direct parent plus loan

I don't think #3 make any sense.

so between #1 and #2 I don't think there is any financial advantage to #2 for kid or parent (assuming the parents are willing to handle default...unlikely)

Advantages of 1:
Interest payments stay with us.
Parents can be flexible with interest payments based on situation

Advantages of 2 :
Possible public service loan forgiveness (Extremely unlikely based on area of study)

Assuming parents are willing to be on the hook for the loan...
Is there any advantage to #2 over #1 that I'm not thinking of??
Dottie57
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Re: Govt Loans vs. Loans from Parents for college

Post by Dottie57 »

I would do #2. It is another stepto full adulthood. A bit of pressure can be agood thing. The bank f mom and dad can always help out. But I really do think it is good for your child to take this on.
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anon_investor
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Re: Govt Loans vs. Loans from Parents for college

Post by anon_investor »

caseynshan wrote: Thu Jun 10, 2021 9:51 am We have a system where we pay a certain amount for college and then after that, kid is 50% responsible.
One kid went to cheap school and is able to get by with job, no loans.

Other kid is going to more expensive school. (and the reasons make sense.. I don't want to argue community college, vs out of state etc.. decision is done)

So the 2nd kid will need to take some loans.
The question is a financial one.. regarding source of loans.

3 options.
1. loan from the 'bank of mom and dad' (mom and dad can handle a default)
2 Govt. Direct unsubsidized loan.
3. Govt. Direct parent plus loan

I don't think #3 make any sense.

so between #1 and #2 I don't think there is any financial advantage to #2 for kid or parent (assuming the parents are willing to handle default...unlikely)

Advantages of 1:
Interest payments stay with us.
Parents can be flexible with interest payments based on situation

Advantages of 2 :
Possible public service loan forgiveness (Extremely unlikely based on area of study)

Assuming parents are willing to be on the hook for the loan...
Is there any advantage to #2 over #1 that I'm not thinking of??
The advantage of #2 is the bank of mom and dad does not have to make a loan and can use those funds for some other use. Also, but this is personal, sometimes the kid be more motivated if they have some skin in the game, and owing a loan to your parents feels a lot different than owning one to the government.

If the cash flow and your kid's motivation are not an issue, then #1 is probably better.
oldfatguy
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Re: Govt Loans vs. Loans from Parents for college

Post by oldfatguy »

caseynshan wrote: Thu Jun 10, 2021 9:51 am
So the 2nd kid will need to take some loans.
The question is a financial one.. regarding source of loans.

3 options.
1. loan from the 'bank of mom and dad' (mom and dad can handle a default)
2 Govt. Direct unsubsidized loan.
3. Govt. Direct parent plus loan

How much will be needed? There are limits to the amount of federal loans for undergraduate education, both for each year and cumulatively.

https://studentaid.gov/understand-aid/t ... n-i-borrow
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leeks
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Location: virginia

Re: Govt Loans vs. Loans from Parents for college

Post by leeks »

If it were me, I would avoid any potential damage to the relationship and let the child take gov't loans.
getthatmarshmallow
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Re: Govt Loans vs. Loans from Parents for college

Post by getthatmarshmallow »

If I were the first kid who'd attended the cheaper college because I had to pay my own way, I'd see option 1) as mom and dad paying for the more expensive college for my sibling. Something to think about.
123
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Re: Govt Loans vs. Loans from Parents for college

Post by 123 »

getthatmarshmallow wrote: Thu Jun 10, 2021 2:16 pm If I were the first kid who'd attended the cheaper college because I had to pay my own way, I'd see option 1) as mom and dad paying for the more expensive college for my sibling. Something to think about.
+1 To me this is the primary problem of a loan from the bank of Mom and Dad.
The closest helping hand is at the end of your own arm.
Topic Author
caseynshan
Posts: 229
Joined: Wed Jan 19, 2011 1:11 pm

Re: Govt Loans vs. Loans from Parents for college

Post by caseynshan »

thanks for the hints..
child1 will probably need loans for grad school.. and if one gets bank of mom and dad, the other will also.
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