Bridging the Dollar Gap
Rising loan rates make it essential for families to act quickly and be resourceful
Students or parents planning to borrow next semester, unfortunately, have little choice but to absorb higher costs. For students, Staffords are still the best loan deal around, even at next school year's fixed 6.8 percent, advisers say.
Parents with good credit or home equity will have to do a little figuring, however. Many banks are offering home equity loans for as little as 7 percent, which could cut about $100 a year in interest off a $10,000 debt, compared with a PLUS loan. In addition, for families earning more than $135,000, the education debt would not be tax deductible, while the higher mortgage payments would probably reduce the family tax bill by several hundred dollars a year.
PLUS loans will be most attractive for parents who don't have sufficient home equity or good enough credit to get the best rates from banks, or those who want to preserve home equity for retirement or an emergency. Stephen Shapiro, a financial adviser with Tuition Solutions Now in Santa Cruz, Calif., also recommends PLUS loans for one other group: parents who are elderly or sick. PLUS loans offer forgiveness of the loan if the parent becomes disabled or if the parent or student dies. "If there's a chance they may not make it" through the repayment period, "they should take a PLUS loan," he says.
Of course, no one should count on a tragedy to save himself from burdensome educational debt. Luckily, a few government agencies and charities have started to respond with happier ways to reduce students' debt burdens. The federal government has launched programs to pay down some education debts of nurses, teachers, child-care workers, and federal employees with skills that are in demand. Many communities and lenders are forgiving the loans of social workers, police officers, soldiers, and other public servants, as well as the neediest students.
A few charities and lenders are also beefing up reduced-rate or even interest-free loans. The Scholarship Foundation of St. Louis, for example, will provide about $2.8 million in interest-free education loans to 600 students in parts of Missouri and Illinois next year, up about $200,000 from the current academic year. Nguyen is one of the lucky recipients. But even if you do end up having to pay high interest rates, a college degree is worth the financial pain, she says. "A lot of kids take out money for a car, but cars depreciate. An education has more value because when you get a job, you can move up" and earn more.
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