Weighing your child’s college education against keeping your own debt manageable is a tough balancing act. Parent student loans could help you fill gaps when other student aid falls short.
There are a variety of student loans available to parents who are interested in helping their child pay for college. Parents can consider either federal or private student loans. Parent PLUS Loans are federal student loans available to parents. Private lenders will likely have their own loans and terms available for parent borrowers.
It’s important to note here that figuring out how to fund your child or children’s education is a personal and individualized decision. Continue reading for an overview of the different loan types available to parents and some important considerations to make before borrowing money to pay for your child’s education.
Types of Parent Student Loans
Parent borrowers can consider borrowing a federal student loan or private student loan. Here are a few of the different types of loans to consider.
Parent PLUS Loans
Parent PLUS Loans are federal student loans that are available to parents of dependent undergraduate students through the Department of Education. They offer fixed interest rates — 8.05% for the 2023-2024 academic year. On the plus side, eligible parents can borrow up to the attendance costs of their child’s school of choice, less other financial aid.
The amount eligible parents can borrow is not limited otherwise, so this can be a useful loan to fill in whatever tuition gaps aren’t covered by other sources of funding. These loans also provide flexible repayment options, such as graduated and extended repayment plans, as well as deferment and forbearance options.
As far as federal loans go, interest rates on Parent PLUS Loans are relatively high. So, it may be worth considering having your child take out other federal loans that carry lower interest rates. Parent PLUS Loans may also come with a relatively high origination fee of 4.228% for the 2023-2024 academic year.
Applying for Parent PLUS Loans
To apply for a Parent PLUS Loan, parents will have to fill out the Free Application for Federal Student Aid, or FAFSA®. In addition to the FAFSA, there is a separate application form for Parent PLUS Loans . Most schools accept an online application. For any questions, contact the school’s financial aid office.
Unlike other federal student loans, there is a credit check during the application process for Parent PLUS loans. One of the eligibility requirements is that borrowers not have an adverse credit history. Though, parents who do not qualify for a Parent PLUS Loan due to their credit history, may be able to add an endorser in order to qualify. An endorser is someone who signs onto the loan with the borrower and agrees to make payments on the loan if the borrower is unable to do so.
Repaying a Parent PLUS Loan
PLUS Loan terms are limited to 10 to 25 years, depending on the chosen repayment plan , and do not offer income-driven repayment plans like other federal loans do (although they may be eligible for the Income-Contingent Repayment Plan if they are consolidated through a Direct Consolidation Loan).
Parents have the option of requesting a deferment if they do not want to make payments on their PLUS loan while their child is actively enrolled in school. If a parent does not request deferment, payments will begin as soon as the loan is disbursed.
Keep in mind that interest will continue to accrue during periods of deferment, so deferring payments while your child is in school may increase the overall cost of borrowing the loan.
Private Parent Student Loans
In some cases, it might make sense to turn to private lenders for student loans. If you have a solid credit history (among other factors), you may be able to secure a reasonable interest rate.
Recommended: Private vs. Federal Student Loans
Before taking on a private student loan, here are some things to be aware of:
• Always read the fine print.
• Origination fees will vary from lender to lender.
• There may not be flexible repayment options, and private loans typically don’t offer deferment or forbearance options the way federal loans do.
• Also, the amount you may qualify to borrow will likely vary.
The application process for private parent student loans will likely vary based on the individual lenders. Repayment terms and options will also generally vary by lender.
Keep in mind that private student loans don’t offer the same borrower protections, like deferment options, as federal student loans. For this reason, they are typically borrowed after other options, like using savings, federal student loans, and scholarships, have been exhausted.
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Cosigning Private Student Loan for Your Child
Cosigning a private student loan with your child means that you both have skin in the game. Cosigning a loan typically means each party is equally responsible for the debt. So if your child stops paying, you’re still on the hook for all of the debt.
Most college-age students have had little chance to build their own credit, so having parents — with better, or at least longer, financial histories — as cosigners might mean a better rate than if they applied on their own.
Parents can work out a plan in which both parents and children make payments, or it may even make sense to have a cosigned loan on which only the child makes payments.
Considerations Before Borrowing a Parent Student Loan
As a parent, of course you want the best for your child and to help them in any way you can. Whether or not you decide to take out a student loan to put your child through school is a decision to weigh carefully.
Your choice will likely have a lot to do with your own financial situation. Consider how taking out student loans may affect your own financial goals, especially retirement.
Staying on track for retirement requires a concerted effort during your earning years. That is in part because it can be more difficult to borrow money to cover your retirement expenses when you’re retired, because you will no longer be earning an income to help you pay back borrowed money.
So, before taking on student debt for your children, you’ll probably want to make sure you’re saving enough for your own future. After all, your children likely have decades of potential earnings after they graduate, during which time they can work to pay off their student loans. You, on the other hand, may not have as much time to pay off new debts and save for other goals.
It may also be worth considering how taking on new debt could affect things like your credit score and your debt-to-income ratio. Lenders consider these factors, among others, when deciding whether to loan you money.
That said, if you feel you are financially strong enough to take on student loans for your child, there are a number of loan options available to you.
The Takeaway
Parent student loans can be borrowed by a student’s parents and used to help pay for educational expenses like tuition. Before borrowing a parent student loan, parents should evaluate their own financial situation and goals, such as retirement savings.
Parents interested in borrowing to help support their children’s education can choose between federal and private parent loans, or may consider cosigning a loan for their child. If you’re considering borrowing a private parent student loan, consider SoFi. The application process is entirely online and borrowers have the option of making interest-only payments while their child is enrolled in school or starting the repayment process up front.
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SoFi Private Student Loans
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