Student Loan options: Sallie Mae and best practices/alternatives

[MarkD]

I'm trying to decide the best path to take in helping my 3 kids (college junior - CA state university ~$24K/year, college freshman - University of CA ~$33K/year, and high school junior) finance their college educations. Our 529 savings plans of $30K each will be exhausted for the older two after the completion of this school year. I initially brought up the subject of taking a second mortgage on our house to help them pay for future school years which Matt spun off into a separate thread here:

http://saverocity.com/forum/threads/should-parents-or-children-fund-college-education-and-how-can-they-do-it.2389/

I was advised against shouldering the majority of the debt myself so I am exploring alternatives. The overwhelmingly most popular student loan option available out there is Sallie Mae.

Not knowing a lot about it and beginning my research into it I thought I would start a thread to get feedback.

It seems a lot of you have student loans that you've mentioned casually in postings in the forum.

What kind of student loan do you have?
If not Sallie Mae, did you find a better alternative?
If you had to do it over again would you do things differently?
What advice would you give to students starting down this path?

 

[YBF2011]

Hello MarkD!

I am currently an engineering student and I have recently gone through the tedious process of searching for ways to fund my college education. Before you even look into loans, make sure that your students have applied for as many scholarships and/or grants as they can! I can not stress this enough. There is a lot of free money out there for school, they just have to find it.

Secondly, they should see if they can get some type of part time job that gets them enough to pay for basic living needs, like food, so that they won't have to get an expensive meal plan from the school. Almost all schools offer work study positions that are more than flexible with your students schedule. Also, maybe look into more affordable schools, or commuting to school in order to cut out room and board fees which usually account for half of those yearly expenses.

After you have exhausted the options above, you should then look into subsidized federal Direct student loans. If you are ineligible for subsidized loans, go for the unsubsidized variant of the loan.

After you have exhausted those options, then it is time to look into the Federal PLUS loan and private loans. I personally am not a fan of the parent plus loan as I believe the interest rate is very high. If your credit is good enough, you may be able to find private loans that have better fixed interest rates than the PLUS loan, and very flexible payment plans.

I found that some states, like Minnesota and Iowa, offer private student loans to residents of those states whose fixed rates beat the PLUS loan by about 1-2%, while still offering very flexible payment or deferment options that are identical to federal student loans. You should look into if your state of residence offer these types of loans.

Things to Know about Private Loans

1. Know the difference between fixed and variable interest rates. Most horror stories involving private student loans come from variable rates ballooning over the years.
2. Get familiar with your credit score. Almost all private loan interest rates, Sallie Mae included, are dictated from credit score. Income and employment also can play a factor.
3. Be very wary about shouldering this much debt. By getting private loans you and only you (unless a cosigner is involved) are legally responsible for the repayment of the debt. If your child does not make as much as expected after graduation, or does not graduate at all, the consequences of them not being able to afford 30k+ in loans falls squarely on your shoulders. This means that the loaners will got after your assets and not the students.
4. Most private student loans allow you to transfer the loan over to the student after the deferment period has ended, and after you make a certain amount of consecutive payments.
5. Look on the universities financial aid website, they usually have suggestions for private loans.
6. Have your kids join in on this research process as funding their college education is THEIR responsibility NOT yours.

Welp! This is all that I can think of at the moment. I hope that this long winded post can help get you started on this journey.

-YBF2011
Mechanical Engineering Major
C/O 2017

 

[MarkD]

@YBF2011 - thanks for replying!

You make some very valid points. We've done the direct subsidized loans which are capped at $5500/Freshman, $6500/Sophomore, $7500/Junior& Senior per year. My daughter has found a part-time job but my son is still settling in as he's only been in school three weeks. I am subscribing to FastWeb which sends scholarships opportunity listings through e-mail each week. Getting my son & daughter to write essays of fill out application forms to apply for them has been difficult so far.

All of the above will help to reduce the amount of loans needed but not eliminate the need. My focus in starting this thread was to focus on the various types of student loans available - specifically for my 18 year-old son who has no credit to speak of and will incur as much as $75K in student loan debt before he graduates. He will need a co-signer. My daughter will have a debt of about $35K but her credit is good enough to get a loan by herself if the interest rates are competitive.

I agree the Parent PLUS loans which the universities offer as the first choice in bridging the tuition gap, does not look like a good option with a higher interest rate than can be found in the private sector. I've just started researching Sallie Mae. Are there any other good programs out there? One option I found is that Sallie Mae will let you apply to drop the co-signer after 12 consecutive on time principal and interest payments during your repayment period after graduation.

 

[YBF2011]

You should look into most big banks as they offer similar student loans. I also found some good deals through local credit unions.

Sites like simpletuition.com may help narrow your search.

@YBF2011 - thanks for replying!

You make some very valid points. We've done the direct subsidized loans which are capped at $5500/Freshman, $6500/Sophomore, $7500/Junior& Senior per year. My daughter has found a part-time job but my son is still settling in as he's only been in school three weeks. I am subscribing to FastWeb which sends scholarships opportunity listings through e-mail each week. Getting my son & daughter to write essays of fill out application forms to apply for them has been difficult so far.

All of the above will help to reduce the amount of loans needed but not eliminate the need. My focus in starting this thread was to focus on the various types of student loans available - specifically for my 18 year-old son who has no credit to speak of and will incur as much as $75K in student loan debt before he graduates. He will need a co-signer. My daughter will have a debt of about $35K but her credit is good enough to get a loan by herself if the interest rates are competitive.

I agree the Parent PLUS loans which the universities offer as the first choice in bridging the tuition gap, does not look like a good option with a higher interest rate than can be found in the private sector. I've just started researching Sallie Mae. Are there any other good programs out there? One option I found is that Sallie Mae will let you apply to drop the co-signer after 12 consecutive on time principal and interest payments during your repayment period after graduation.

@YBF2011 - thanks for replying!

You make some very valid points. We've done the direct subsidized loans which are capped at $5500/Freshman, $6500/Sophomore, $7500/Junior& Senior per year. My daughter has found a part-time job but my son is still settling in as he's only been in school three weeks. I am subscribing to FastWeb which sends scholarships opportunity listings through e-mail each week. Getting my son & daughter to write essays of fill out application forms to apply for them has been difficult so far.

All of the above will help to reduce the amount of loans needed but not eliminate the need. My focus in starting this thread was to focus on the various types of student loans available - specifically for my 18 year-old son who has no credit to speak of and will incur as much as $75K in student loan debt before he graduates. He will need a co-signer. My daughter will have a debt of about $35K but her credit is good enough to get a loan by herself if the interest rates are competitive.

I agree the Parent PLUS loans which the universities offer as the first choice in bridging the tuition gap, does not look like a good option with a higher interest rate than can be found in the private sector. I've just started researching Sallie Mae. Are there any other good programs out there? One option I found is that Sallie Mae will let you apply to drop the co-signer after 12 consecutive on time principal and interest payments during your repayment period after graduation.