Navigating the complicated world of student loans can be a stressful challenge for college borrowers. And missteps along the way can cost you thousands of dollars.
In many cases, a simple tip or suggestion from a financial pro could help you save money and avoid falling into burdensome debt.
U.S. News regularly speaks with some of the top student loan experts and wealth advisors about financial strategies and repayment solutions. But everyone’s situation is different. So we’re dedicating this column to answering specific questions. Your questions.
Here’s how it works. You send us a summary of your student loan predicament, and we’ll reach out to the ideal expert who can provide valuable advice. Each month, we’ll feature new questions and new experts. This is your chance to get free personal tips from the best in the business.
If you have a student loan question for an expert, send it to askastudentloanexpert@usnews.com. The more financial details you provide, the better our experts can assess your situation and offer actionable suggestions. We won’t publish your name. You’ll get a cutesy moniker such as “Fed Up in Fredericksburg” or “Swamped in Shreveport.”
The experts we enlist for this column can’t guarantee that their tips will save you money. Financial advisors need a comprehensive picture of your finances. But they can point you in the right direction, which could potentially result in significant savings.
We begin this month with parents facing hundreds of thousands in loans to put their two children through college. For help, we’ve tapped Jack Wang, a financial advisor and the host of the
Dear Expert,
I am feeling completely overwhelmed and anxious about our family’s student loan situation. My husband and I already have $50,000 in consolidated student loans for our eldest child on an income-based repayment plan, which costs us about $400 a month on our $80,000 income.
Now, our younger daughter is about to head off to college this year. Even after her scholarships and federal loans, we are looking at a gap of $20,000 per year that we need to cover.
We have $10,000 in a 529 plan from her grandparents to start with, but that won’t last long against the $80,000 total we expect to need over four years.
My husband and I are losing sleep over how to piece this together. Should we take out more Parent PLUS loans? Are private loans a better option for us now or maybe a mix of both?
We just want to do right by our kids without drowning in debt we can’t afford. Please help!
— Anxious in Appleton
Dear Anxious in Appleton,
First, your daughters are lucky to have you. Not every parent helps their students pay for college.
Your two issues of paying student loans and now having to pay for your younger daughter are more intertwined than you may think.
Regarding the repayment of student loans, depending on who is the borrower of those federal loans and how much that person makes, you may consider filing taxes married filing separately to get a potentially lower payment on your existing student loans. One important tax consideration is that filing separately would not allow you to claim the student loan interest deduction, but you would need to balance that with the potentially lower payment by filing MFS.
By lowering the payments on the existing federal loans, you will improve your odds of qualifying for a private loan for your younger daughter.
For your younger daughter, you can reduce some early borrowing and accrued interest by using the entire 529 in the first year.
Some argue to spread out the 529 across the four years, but loan interest accrual would likely exceed the benefit of the 529 potentially growing in the future.
For the rest of your younger daughter’s college expenses, you may want to consider a cosigned private loan before the Parent PLUS. In the future, you may be released as a cosigner once your daughter is financially able to cover the loan on her own, yet you can still help her make the payments. This would give you financial flexibility in the future to address other financial issues, such as retirement.
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Also, there’s no guarantee that you will credit qualify for private loans in the future since lenders look at the debt-to-income ratio. If you are denied a loan in the future, you can then fall back on the Parent PLUS loan as an option since credit scores and income do not matter. However, if you start with Parent PLUS loans, you might not qualify for a private loan later.
Your younger daughter should apply to that can help reduce college costs. Scholarships are available for all years of college.
— Jack Wang
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