Dear Liz: My son will be going to a for-profit technical school about 120 miles away from home. Unfortunately, we have not saved any money for his college education. What are our best options for borrowing to pay for his college education, which will cost about $92,000 for four years? He is not eligible for any financial aid other than federal student loans. Our daughter will graduate debt free with her bachelor’s degree in December. Since we concentrated on her education first, our son kind of got left behind.
Answer: Please rethink this plan, because your family probably cannot afford this education.
Federal student loans would allow your son to borrow, at most, about a third of this school’s cost. If he were to borrow the rest of the money, he would have to turn to private student loans, which have variable rates and none of the consumer protections embedded in federal student loans. Private student loans are like using credit cards to pay for college — except unlike credit card debt, student loan debt can’t be discharged in bankruptcy.
The other alternative would be for you to borrow the difference between his federal student loans and the cost of his education using PLUS loans. These are federal education loans for parents and graduate students. As with federal student loans, the rates for PLUS loans are fixed, although they’re somewhat higher — 7.9%, compared with 6.8% for unsubsidized Stafford student loans.
But using PLUS loans means taking on a lot of debt at a time in your life when you should be concentrating on saving for your own retirement. If making the payments would interfere with your ability to contribute sufficiently to your retirement funds, you shouldn’t even consider borrowing the money.
Even if you already have a well-funded retirement plan, you should think twice. Your son may be able to get a better, more affordable education from a public college — particularly if he starts at a two-year community college nearby, allowing him to live at home more cheaply, and then transfers to a four-year school.
For-profit colleges can be expensive, and loans made to students who attend four-year for-profit colleges have twice the default rates of loans made to other college students. Figures provided by the U.S. Department of Education show that of loans that entered repayment in 1995, 30% of those made to students attending four-year for-profit colleges were in default 15 years later, compared with 15.1% for four-year public colleges and 13.6% for four-year private nonprofit schools.
That high default rate should give you pause, even if you were paying cash for this education, because it indicates that many graduates either aren’t finishing their educations or aren’t finding jobs that pay well enough to repay their loans.
Critics complain that for-profit schools often over-promise and under-deliver when it comes to training students for existing jobs. The for-profit schools attribute high default rates to the demographics of their students, who are more likely to be lower income and from minority groups than other college attendees.
You may feel guilty for shorting your son when it came to saving for college. But please don’t compound the problem by blessing an education that could leave him, and you, with unaffordable debt.