What loan options do I have for helping my child afford college?
Starting college is an exciting time for parents and students alike. But this excitement often comes with stress and uncertainty about how to pay for school. You may be wondering what options are available for you and your child.
If you want to help your child cover the costs of higher education, you have many different options. It’s important to understand your options in order to make an informed decision. There are both federal loan options and private loan options. Understanding these two loan options and how to compare them can help you make good decisions.
Should I get a Parent PLUS Loan?
The federal option available to parents is a Direct PLUS Loan, also called a Parent PLUS Loan. This loan has a fixed interest rate. Just like federal student loans, the servicer for this loan is assigned by the Department of Education. For this loan, the student must be enrolled in school at least half time.
To apply for a Parent PLUS Loan, you complete a separate application in addition to FAFSA each year. This application considers your credit and also ensures that you and your child meet the eligibility requirements for federal student aid. These requirements include US citizenship or eligible non-citizenship, financial need. Also the student must be enrolled in an eligible degree or certificate program at the institution they attend. If you qualify, you can borrow enough money to cover the difference between your child’s financial aid and the cost of attendance.
One benefit to the Parent PLUS Loan is that you can defer payments while your child is in school. If you don’t elect to do this, your payments will begin once the loan has been fully disbursed to the school. There are three repayment options for the Parent PLUS Loan: standard repayment, graduated repayment, and extended repayment. This loan can also be eligible for Public Service Loan Forgiveness if you consolidate them into a direct consolidation loan. Eligibility for this program and the different repayment options are based on the parent’s occupation.
Parent Plus Loans are in the parent’s name. You cannot transfer these loans to the student at any point in time.
Should I get a private loan to help my child pay for college?
In addition to the Parent PLUS Loan, you can also take out private education loans to help your child pay for school. These loans are different than private student loans that you cosign. Instead, these loans are designed for parents and are held solely in their name. Like the Parent PLUS Loan, private education loans for parents consider your creditworthiness. These private loans can have fixed or variable interest rates depending on the borrowing terms. Your credit will determine the interest rate.
Like the Parent PLUS Loan, you can privately borrow the difference between financial assistance and the cost of attendance. Depending on the lender, you can select full deferment or interest only payments while your child is in school. Once your child graduates or leaves school, there are often different repayment plans that you can choose.
What is the right way for you to support your child?
Both types of parent loans allow you to help pay your child’s education expenses. Make sure that you can make the payments and understand the terms of the loans, as you are the ones borrowing the money. It’s also important that you are getting the best loan for your situation. Compare interest rates, repayment options, and fees to make an informed decision.
Kimbree Redburn is an Accredited Financial Counselor® with a background in economic development. She works with her clients to help them understand their financial options and make money decisions with confidence. She believes that financial education gives people a chance to build a better life.