Student Loan News, Updates and Blog Posts

This morning I received a question about the parent plus loan that I felt would be beneficial to share with all of you.

Q: I will have three children in college this fall and all three are eligible for the subsidized Stafford loan at 5.6%, which we will utilize. However, that will not be enough to cover all of their tuition. My question is would it be more beneficial for me to have them take out the unsubsidized Stafford loans at 6.8 % or tap in to a home equity line of credit at 3% to cover the difference?

A: There are a few factors to consider here. First off, would your home equity line of credit be fixed or variable? The prime rate, which drives the home equity line rate, will not stay at 3.25% forever. However, for now it makes the equity line option very appealing (especially if it is fixed). Second is the length of time you have to pay the money back and when payment begins. Stafford loans hold 10-year repayment terms and are deferred while the student is in school. Third, both have tax benefits. You can charge off the interest paid on both the equity line and Stafford loan which is good. Fourth, are any of your students going into public service? They may be entitled to loan forgivenss under the Stafford loan program which you don’t want to miss out on. Fifth, are there fees or points associated with your equity line? There is usually a 1% fee attached to the Stafford loan.

As you can see it is not a simple black and white answer. It really depends on a number of factors. What is right for me may not be right for you.