In recent weeks, there was an article in the Wall Street Journal that is, unfortunately for Louisiana students and parents, suddenly relevant in light of proposed TOPS changes. It concerns borrowing for college. If, in fact, TOPS awards are reduced, many families may look to federal student loans for help. They are generally available to all students regardless of family financial situations, have flexible payback terms and low rates-in the high 3%, low 4% range. But what if there is a need for additional funding? One option would be federal PLUS loans, which, if a student is supported by their parents, can provide from $5,500 to $7,500. These loans are made in the parents’ name and are available to families of any income level after a credit check is passed. There is an origination fee of 4.27% and a fixed interest rate of 6.31% as of July 1, 2016. Families have the option of deferring payments while the student is enrolled in school, but interest on the debt will accrue.
Parents with good credit rating may find loans from private sources less expensive. Typically, you would avoid origination fees and may find lower rates. There is a website (Cappex.com) that connects students with colleges and financial aid. Three sources of funding without origination fees are SLM Corp., also known as Sallie Mae, Wells Fargo and Co. and Social Finance Inc. According to the article, rates from these three providers range from 4.5% to 5.99% with loan maturities from 5 to 15 years. Parents are responsible for the debt and income documentation is usually required.
Two other options include home equity and home equity line of credit loans. These are secured by your home and interest rates tend to be lower than unsecured loans. With a home equity loan, you would receive a lump sum payment; a line of credit approach provides a revolving credit line and rates may be variable. Also, you may get a tax break with a home equity loan if you itemize deductions. Check with your tax advisor. Also, know that if you default on a home equity loan, you may put home ownership at risk. One final possibility is a loan against your 401k plan. The loan is nontaxable as long as you repay it within five years. Interest rates are generally low and you can borrow the lesser of $50,000 or one half the vested account balance. Borrowing will have a detrimental effect on the growth of your retirement fund.
June was a month of grandkid action for me and Beverly—caddying for a grandson’s golf day, catching up with a newly documented teenage driver, hosting two granddaughters for art camp at River Oaks and spending a week with all of them at Gulf Shores. And don’t forget babysitting a granddog for an indefinite period of time. How blessed can you be? In my prayer life, which seems to be more constant recently, I talk with God a lot. I always try to start with thanking him for all the gifts and blessings he has poured down on me. I also thank him for the possibilities and opportunities he lays before me, some of which I fail to recognize until a later date. Included in my thanksgiving is the gift of family followed by a petition that my children and grandchildren will receive God into their life and recognize his place in their life. Psalm 72: “Blessed be the Lord God, the God of Israel, who only does wondrous things! And blessed be His glorious name forever! And let the whole earth be filled with His glory.”
Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed. This material is intended for informational purposes only and should not be construed or acted upon as individualized tax, legal or investment advice. FSC Securities Corporation does not offer tax or legal advice. The views expressed are not necessarily the opinion of FSC Securities Corporation. Financial Solutions Group is a marketing name. Financial Solutions Group is located at 128 Versailles Blvd, Alexandria, LA 71301. We can be reached at (318)448-3201. Securities, insurance and advisory services offered through FSC Securities Corporation, member FINRA/SIPC.