Qualifications for Student Loan
My son will be entering his sophomore year at a 4 year private university. For
his freshman year, I took out a Parent Plus Loan. However, as a single parent,
there is no way I can do this every year. Therefore, my son is applying for a
student loan through the university's recommended lender, in the amount of
$8,000. It appears, from the application, that I must be a cosigner on the
loan application since he has no credit history. No problem there. However,
when I called to inquire about something, I was told that unlike the Parent
Plus Loan, which is approved based simply on credit worthiness (of which mine
is excellent), the student loans go by credit worthiness AND debt vs. income.
As a single parent, my income hovers in the $30,000. range, but along with this
I also have a mortgage, car payment, and approx. $5,000.00 in credit cards. I
am concerned that because of a low income, my son will not be approved for this
loan. I am beginning to panic because school is only 4 weeks away, and I don't
know what I'll do if he isn't approved for a student loan. Can you calm my
fears?
If you want to take the "student loan" instead of the PLUS as a way for
you to have less responsibility for the loan, be aware that when you
co-sign the "student loan" you become just as legally responsible for it
as a PLUS loan. You are essentially saying that if your son doesn't pay
it, you will.
The difference is that they now have two people that are taking
individual responsibility, and if one doesn't pay they can go after the
other person. So you personally don't have any less responsibility with
the "student loan" vs. the PLUS.
As to whether you'll qualify for the "student loan", only the lender can
tell you. They are going to compare your total debt of all kinds against
your income to determine if you can reasonably be expected to meet all
those payments. If they think that you can't, then no loan. And remember
that the new debt will be considered as part of your debt next year if
you apply again.
Depending upon how much you really must borrow, there is one aspect of
the PLUS to consider: if you should be turned down for a PLUS loan, your
son can then borrow up to another $4,000 ($5,000 for juniors and
seniors) in the form of an UNSUBSIDIZED interest-bearing Stafford loan.
Like the regular Stafford it will be in his name alone (a TRUE student
loan).
For unsubsidized Stafford's he'll have the option of paying the interest
each month, or deferring it (with compounding) until after he's out of
school. In other words, that $4,000 loan can become maybe $5,000 by the
time he graduates - so consider checking off Item 12 on the promissory
note that reads "I want to pay unsubsidized interest while I am in
school." At current rates, it'll be about $27 per month once both
semesters have been disbursed to the college.
A side issue: based on a $30,000 total income I suspect that you
received a Pell Grant, which means that your EFC was under $3,100. That
means that the college did not choose to fill your son's full need since
you still have to borrow another $8,000. Some schools just don't have a
lot of money to give, but if your son's grades have been less than
stellar it could be why you were shorted. If true, make him aware that
if he brings his grades up there's a chance that the college could give
him more money next year - it's always the best money to the best
students...if it's available at all.
And have you spoken to the financial aid office about your dilemma? If
you ask, they may be able to offer some additional aid help - or not.
Your situation may help remind others just entering the college cycle
that they have to consider how they'll manage to pay for four years of
college, not just the first year, once they know how much aid a college
is offering to the potential freshman. If the EFC stays around the same
or less each year, one can usually expect to get about the same amount
of aid each year (but not necessarily any more).