Learn me: Student loans for your little GRMer that do not require co-signing

My son is graduating HS in the spring and was accepted into one of the satellite colleges in the U-Wisconsin system (Stout).

His mom and I are divorced and we share placement and custody.  She is remarried and I am not. I am not looking to co-sign anything where it goes on my credit--I have worked in consumer finance for years and have lost count of how many times I have seen private co-signed loand ruin a parents credit, not just for college, but for cars etc.

I am aware of FAFSA--what else is there to consider?

You (and your ex) need to fill out the FAFSA and see what comes up as far as aid/loans. The big thing is that there are ok loans to take and really really crappy loans to take. We just walked through all of this with my niece. On the list of options for her I didn't see a single loan on the unsubsidised list that wouldn't financially cripple her. They were ALL above 5% deferred payments with the interest compounding on itself. The only ones that made any sense were the subsidised one that didn't charge any interest until she starts paying on them. For her, that was about $10k a year which was half of the cost. It's a crappy system right now. 

Read this thread: https://grassrootsmotorsports.com/forum/off-topic-discussion/college-money-holy-carp/142078/page1/

(This is oversimplified, slightly)

Looking at Stout's website, it looks like their tuition, fees, room and board are about $17,000 in state. Lets round that up to $18,000 for books and "other" stuff. Looking at this website, they have about a 1.1% inflation rate. Lets round that up to 2%. Note that the Stout website has annual tuition for 15 credit hours per semester, so there might be need for more than that to get the degree. 

If you're financing the full amount, this would be about $74,000. Lets say this is a 10 year loan at 4% (which is lower than you'll probably be able to get), and it doesn't start generating interest until your son graduates and gets a job. My back of napkin calculations are showing about $750 to $760 a month in payment to the student loan. 

Ok, great, he's graduated. Lets say he's making $45,000 annually with that shiny new degree living in Wisconsin, and he is smart, and putting away 15% to his 401k (which, incidentally, is too low for someone his age if he wants to retire by 65)- we won't add in medical insurance, because he has 4 more years that he can be on mom or dads insurance as he is not 26 yet. His take home pay is $2,412.47, monthly. 

Now to the living expenses. Smart kid, found some roommates. $500 a month for rent. Student loan is $750 a month. Car insurance is $150 a month. Food is $200 a month. Entertainment is $200 a month. Cable, internet, netflix are $100 a month. Phone bill is $100 a month.

We will assume that, as your kid, he's pretty savvy with a car and has one that is PIF and reliable, but we'll still add in $100 a month in car care costs - oil changes, gasoline, tires, wear and tear, etc. He's now down to $512 left over at the end of the month - he's saving that towards a down payment on a house, because he wants to get his housing costs down. But how long is he going to be able to keep living with roommates? What if the car breaks down and he needs to replace it? Or the alternator fails and he needs to be somewhere tomorrow and needs to rent a car to get there? 

None of this is ridiculous, and in Wisconsin will probably go far enough, but is the $45k starting salary really what he's going to get? Is he going to be able to stay on mom or dads health insurance? If not, add in another $100-$300 a month to expenses, assuming he's with an employer that helps out. I started at $31k in 2012 in Illinois, degree in Mathematics. 

Now, lets start talking about ways to reduce this. First, summer school at the local community college. Heck, he may even be able to start with a night class or two for the spring semester. Knock the underwater basketweaving gen-ed requirements out at a much lower cost. Second, he has a job, right? If not, send him over to the local golf course, swimming pool, landscapers, etc. You too, mom and dad - tighten the belts and help out where you can. That may mean cosigning on the loan to get the interest rate down - because he is going to be saddled with this albatross for 10 years (or more) from what I can tell.

I gotta be honest here, if you don't trust your kid enough to cosign a loan for him, why do  you trust him enough to go to college? My wife and I worked our asses off before and during college, after college for a while my wife had 3 jobs and I've had 2 jobs since I was 18. I had significant parental help, my wife also had a 2 year scholarship, parental help for undergrad, along with lower tuition because her mom worked for the state - we were both at an in-state school, both had AP/college credit coming into college, and even with all of that we still at age 29/30 have meat left on my wife's student loan from her masters (directly after her bachelors at the same state school). Had we been saddled with the full costs of our education (and we've paid over 50% of the total cost on our own), we would not own a house, we would not have our dog, we would not have nearly any of the things that we do... and we're still paying $300 a month on a low interest rate student loan, and will be for 2 or 3 more years.

Maybe you can take a flyer that Elizibeth Warren or Bernie will win and knock out the student loan debt (which would piss me off, because had I taken student loans and put that money in the market I'd be worth about 3x what I am now - where the berkeley is my free lunch), but I really have to caution sending an ignorant kid into the world with a financial noose around his neck. Help him out with this however you can. There is personal responsibility for your son, yes, but the college costs have risen exponentially to a point where it is arguably criminal.

As to your question, start calling up every scholarship you can find, start calling every credit union you can find, funnel as much of your income as you can to a 529 for the tax advantages, etc. 

EDIT: Just to reiterate, kids have ABSOLUTELY NO IDEA what they are doing when they're signing the loans. An 18 year old has no concept of what a 10, 20, or 30 year commitment is. They have no clue what a student loan means for their wealth building power, or how it is going to impact their life. I fully support going to college, it has opened more avenues for me than trades probably would have, but I sure am glad that my dad didn't let me sign a loan to go to a private school. 

Oh, other ways to reduce this - have him apply to be an RA, when he's home on Thanksgiving and Christmas he's working somewhere, potentially ROTC, figure out if he can avoid staying in the dorms and avoid a food plan (which are hilariously bad deals), etc. 

Been thinking more about this. Does your son have any credit history? I can't imagine anyone giving a decent rate without one. And even with one, I don't think he'll get a rate that is reasonable.

Does he have a car that he owns outright? May want to get a loan against that as the interest rate will be reasonable. Or, another idea, buy a 3-5 bedroom house within 2 blocks of campus and rent out 2-4 rooms to other students. You'd probably be able to cover the full monthly payment just from the other renters, and in Menomonie, I can't imagine a house costing more than $200k at the top of the market; lower end houses are probably as low as $60k. That'd eliminate the room and board fee. Of course, that is taking the assumption that your son stays there for 4 years and can find roommates, and there are a whole other list of reasons why this could be a bad idea (hopefully obvious), but it is an idea to reduce the costs.

So the last few times I’ve been to my gym one of the front desk employees has always been talking about her student loans. She’s working at the gym out of necessity for a job that has nothing to do with her degree in social work. After hearing so much about it I finally just asked how much she owed. She seemed willing to tell me that the interest payments alone were almost $200 each month. That’s just interest. She didn’t offer the total monthly payment and I wasn’t going to ask anymore about it but as I know it has to be a huge amount. She went to a rather popular yet expensive local College. When she has talked about this debt she sounds like a human being totally defeated. She said in hindsight she wished she payed more attention to the financial details of going to an expensive 4 year college with no scholarships or grants. 

As for myself I paid my own way through community college and eventually got my bachelors  (cheapest credits I could find at a state university) over several years while working full time. It took me 6 years but I did it. Funny thing is I have co-workers who have the same basic job as I do making the same amount of money and they went to a private 4 year university and obviously paid a heck of a lot more than I ever did for basically the same degree. 

The only advice I can offer the OP is if the student decides for sure they are going to incur college loan debt, incur it at the cheapest possible cost. 

To be clear, I’m not saying don’t send your kid to college, and I’m also not saying don’t get a student loan.

I’m saying:

1. Educate him on personal finance, and what a student loan means for life long wealth building
2. Encourage him to work his ass off to pay as much as he can
3. Encourage him to reduce the costs as much as he can (community college, AP, become an RA, read the class catalog so he’s not wasting money on worthless classes that won’t help him graduate)
4. Help him by covering what you’re able to cover, and 
5. Help him by co-signing the loan and make perfectly clear that you’re putting your neck on the line for him because you love him, trust him, and don’t want to saddle him with this for his whole life. 

Has he tried applying for a Pell grant? Those can round off a lot of corner$ if he's eligible.

I want to acknowledge the effort and output of MTN’s posts in here. Quality stuff with real numbers. 

My (employer’s big international architecture) firm hired a kid a couple years back out of SCAD. The private design college. Great kid, great employee, smart, all the things you want. But his berkeleynut parents allowed him to go into the world saddled with $160k in student debt when an in state school would have cost half as much. He will carry that debt way past 40 years of age. 

Approaching 30, he could be a journeyman electrician by now making  close to (or over) six figures with no debt ever.. instead he is probably earning mid sixty thousand dollar salary with what is essentially a mortgage payment eating every penny. 

Don’t let him be that kid. 

Edit: local community college will cost half as much as UW and doing the first 2 years there, while working and living at home will save a LOT. 

Mtns.post is solid.  I just finishing paying off my wife's loans and will pay mine off in a few years. My wife makes very little as a teacher and stayed at home for 9 years with the kids. Choices matter.  Would do it again.  

Fueled by Caffeine said:

Mtns.post is solid.  I just finishing paying off my wife's loans and will pay mine off in a few years. My wife makes very little as a teacher and stayed at home for 9 years with the kids. Choices matter.  Would do it again.  

Probably important to point out that your student loans, or at least the bulk of them for FBC if not your wife, were from a top tier or close to it MBA program that has allowed you to probably triple your salary. Different conversation than undergrad. 

I appreciate all the feedback.

I will expand my thoughts here.

I would prefer that he go to a local community college and get pre-reqs out of the way there, but his mother wants him to have the full "college experience".   He is looking at getting a degree in Construction (BS).  I think that he could also look at getting much of that experience in the Air Force, and get a GI Bill to boot.

Ultimately I would prefer that he goes into the trades and look towards a career there.

I think he is feeling pressured by his mother.  I have told her what I think, and it's largely being blown-off by her.

In reply to FSP_ZX2 :

I did the community college thing. It was a great place for me to realize at $49 a credit hour that I didnt like programming and engineering was my path. 

In reply to mtn :

I did go to a good MBA school and have nearly quadrupled salary since then(I had a good year for bonuses dont expect that next year)    I bring up the money because the trades keep being brought up as a good job with good money and some kinda foil to stupid kids who go to college and spend all these loans and write run on sentences with dodgy punctuation and can't manage life blah blah blah.   My only point is that it can still work out. If i married another engineer or doctor it would have worked out faster.  a private school teacher. Ugh. Why. 

My undergrad was at a more expensive out of state school. That should have been a state school.  Also. My timing should have been better. Graduating undergrad in 2003 and grad in 08-09 was just stupid. 

I actually know someone who is now probably retired, but he has a construction degree from Stout. Did very well for himself and family, but the company he worked for had his name on the trucks. 

FSP_ZX2 said:

I appreciate all the feedback.

I will expand my thoughts here.

I would prefer that he go to a local community college and get pre-reqs out of the way there, but his mother wants him to have the full "college experience".   He is looking at getting a degree in Construction (BS).  I think that he could also look at getting much of that experience in the Air Force, and get a GI Bill to boot.

Ultimately I would prefer that he goes into the trades and look towards a career there.

I think he is feeling pressured by his mother.  I have told her what I think, and it's largely being blown-off by her.

Sit down with your son (and his mother if she will consent) and go through the numbers. Bring up the real numbers, show what a real world situation would be. 

And he can get the full college experience, but head to CC at night in the spring and in the summers. 

Also, READ THE CATALOG. Don't take classes that don't help you get to your degree unless you have to, because the school requires so many hours in underwater basketweaving.

Fueled by Caffeine said:

In reply to mtn :

 

My undergrad was at a more expensive out of state school. That should have been a state school.  Also. My timing should have been better. Graduating undergrad in 2003 and grad in 08-09 was just stupid. 

 Go  yell at your parents. So selfish to have you be born when you were.

In reply to FSP_ZX2 :

Why shouldn’t he work?  I did while I was getting my degree at night.  I started at 4:00am and finished at 6:00 pm then carried at least 12 credits a semester from 6:30 on. I usually got home by 10:00 and had 6 hours of sleep 

Weekends I caught up on chores did longer term projects etc. washed clothes made and froze meals. 

In reply to mtn :

Just curious how you came up with $750/month for student loans? I graduated with roughly half that, and have been $119/month for quite a while. Granted I put it on the 20 year option, not 10 or salary based, but I was able to consolidate my loans in early 2006 at far below the inflation rate. Like I haven't been able to write off the interest on my student loans for the last 7-8 years. 

A few points higher on interest isn't really quadrupling the cost of the money, is it?

z31maniac said:

In reply to mtn :

Just curious how you came up with $750/month for student loans? I graduated with roughly half that, and have been $119/month for quite a while. Granted I put it on the 20 year option, not 10 or salary based, but I was able to consolidate my loans in early 2006 at far below the inflation rate. Like I haven't been able to write off the interest on my student loans for the last 7-8 years. 

A few points higher on interest isn't really quadrupling the cost of the money, is it?

10 year repayment, 4% interest, $74k. I just did the calculations on my cell phone so could have been way off, but you refinanced in 2006. Different world today. 

Looking at Bankrate's calculator, I didn't mess up my calculations. If we move it to 10 years 6% interest, it is $821 a month; if we move it to 20 years 4% interest it is $448, 20 years 6% is $530.

z31maniac said:

In reply to mtn :

Just curious how you came up with $750/month for student loans? I graduated with roughly half that, and have been $119/month for quite a while. Granted I put it on the 20 year option, not 10 or salary based, but I was able to consolidate my loans in early 2006 at far below the inflation rate. Like I haven't been able to write off the interest on my student loans for the last 7-8 years. 

A few points higher on interest isn't really quadrupling the cost of the money, is it?

Also remember that you refinanced when you had a [probably decent] salary, credit history, and the aforementioned different economic climate. He cannot get those things to get a low rate unless his parents help him by cosigning.

frenchyd said:

In reply to FSP_ZX2 :

Why shouldn’t he work?  I did while I was getting my degree at night.  I started at 4:00am and finished at 6:00 pm then carried at least 12 credits a semester from 6:30 on. I usually got home by 10:00 and had 6 hours of sleep 

Weekends I caught up on chores did longer term projects etc. washed clothes made and froze meals. 

 

I never said he doesn't or won't work.  He works part-time now as a senior in HS.

In reply to FSP_ZX2 :

The GI bill is a really nice benefit.  Not only for College but also buying your first home with nothing in the bank.  

You don’t have crawl in the mud and be a target either.  

Air Force, Navy, Coast Guard all tend to reward intelligence and give you a taste of a future career.  

Plus they all have programs where you can earn college credits on line at minimum  or no cost. 

The down side is they are 4 year programs rather than 2. But those 4 years will give you enough maturity and probably a decent taste of what you want to or don’t want to wind up doing.  So you’ll go into college knowing why and what’s expected.  Not to mention a resume that will warrant respect since you’ll have a taste of managing people.  You won’t be just another college kid looking for his first real job.  

I just refi'd my last loan through SOFI.  It was a government consolidation loan at 5.5% that I got down to 4% and put on a 5 year payback..  Payments are hefty, but I'll beat the 5 years..   

If I could talk to 19 year old me, I'd say this..  Federal loans good.. Private loans bad..  If you cant get a federal loan for it and you can't make up the difference, you can't afford it...

Posts like these make me happy I dropped out of college, but not looking forward to when Mini Fuzzy is high school aged.

But I will say when I was going to community college, everyone's goal was to spend the 1-2 years there knocking out as many classes as humanly possible in order to make paying for university cheap as hell. Most people I knew also had a part-time job at the least to save up for university.

The other bright side to your local CC is that you can pay ~$100 (or less!) to find out that maybe you're not all that interested in networking or marketing or whatever.

OR as previously mentioned, join the Air Force/Navy for the next four years, get paid to learn a trade (and get credits depending on his MOS and any training he gets while in!), utilize that GI Bill when he gets out, and not have any or very little student loan debt. He'll miss that "college experience" but instead gets real life experience. He can even still go to CC with the GI Bill, knock out more gen ed or refreshers, and then use what's left at Uni. Ooooorrr take classes while he's in and it's been a few years since I've been in, but I believe his unit can/will cover expenses if approved.