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.
It’s important to note here that figuring out how to fund your child or children’s education is a personal and individualized decision. This article is intended to be purely educational—only you know what’s best for your family.
Student Loans for Parents
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.
On average, Americans ages 38 to 43 have only set away about $67,000 in retirement funds . Depending on your lifestyle and income, you could need $1.5 million or more to cover your retirement expenses.
Reaching this number 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.
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—7.6% for the 2018 to 2019 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 great loan to fill in whatever tuition gaps aren’t covered by other sources. These loans also provide flexible repayment options, such as graduated and extended repayment plans, as well as deferment and forbearance options.
These loans do have a few potential cons. As far as federal loans go, their interest rates are relatively high. So, it may be worth considering having your child take out other federal loans that carry much lower interest rates. Parent PLUS Loans may also come with a relatively high origination fee of 4.248% for the 2018 to 2019 academic year .
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).
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. Before taking on a private 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.
Cosigned Private Loans
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.
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The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.