If you are a parent looking to help pay for your child’s college education, and you want to look into several different parent loan options, look no further. This guide will assist you through all your college loans needs and provide you everything you need to know when it comes to choosing a loan. Our guide includes:
- Tips for looking for the right college loan
- The best college loans for parents
- Frequently asked questions about college loans
Tips for looking for the right college loan
Consider the estimated costs
Before looking into everything, try to estimate how much money you need to borrow. If your child has selected a school, look into their tuition costs, as well as any scholarships or grants they might provide to your child. From there you can estimate how much you are able to contribute and then how much you still need.
Start off with federal loans
Federal loans typically have the most benefits and best terms when it comes to interest rates and flexible repayment plans. Start your journey off by filling out the Free Application for Federal Student Aid (FAFSA) to see what federal loans you might be eligible for, then continue on with the loan process.
Research several different lenders
If you are thinking of using private loans, be sure to research several different lenders before selecting one. The more you search, the more likely you are to find the perfect one.
Read reviews
During your research process, see what others have to say about their borrowing experience with a particular lender. These will be able to tell you more about the loan than what is marketed. It will help you make a more confident decision when searching for loans.
Compare benefits
To make sure you are getting the most out of your loan, compare them to other loans. Look for any additional benefits such as lower interest rates or reward programs for borrowers.
Review the terms
Be sure to fully review the terms of the loan before selecting. Make sure to be aware of the fees, repayment period, total loan cost, any advantages, or disadvantages.
Talk with a financial advisor
A financial advisor can provide sufficient guidance through this process, answering any specific questions you have or suggest any loans that are the most suitable for you and your child.
The best college loans for parents
Federal Parent PLUS Loan
This is a type of federal loan granted to parents of dependent undergraduate college students. These loans will have a fixed interest rate, and will stay the same for the entirety of the loan. You can borrow up to the amount of attendance minus the amount of financial aid your child is receiving. The payment for this loan is due right when the loan is disbursed. However, there is the option to defer payments while your child is attending school, but they have to be enrolled at least half-time.
These loans also require a credit check from the borrower parent to check to see if they have ever filed for bankruptcy or foreclosure in the past. Typically, the federal parent plus loan is less strict with their credit requirements unlike the requirements for private loans.
You can be eligible for a forgiveness program through a Parent PLUS loan, as well as eligibility for federal student loan discharge options.
To apply to this loan, you can fill out the application on the Federal Student Aid website. Before you can receive any funds, you have to be sure to complete the Master Promissory Note as well. The application process is estimated to take about 20 minutes to fill out.
Private Parent Loans
Generally, private lenders from banks, credit unions, and many more, can offer a variety of interest rates and terms. Here are some of the best private loans on the market, especially for parents:
- Sparrow Student Loans
- College Ave Student Loans
- Earnest Student Loans
- Credible Student Loans
- Citizens Bank Student Loans
401(k) Retirement Plan Loan
Parents have the opportunity to borrow up to $50,000 from their 401(k) retirement plan to help pay for their child’s education. This loan offers a low interest rate and won’t be impacted by the borrower’s credit score. One of the downsides is that the repayment period for this loan is often 5 years, and if it isn’t the loan is treated as a taxable income. Another downside is that if you lose or leave your job, you might be required to pay off the loan immediately.
Home Equity Loan or HELOC
If you are a parent who owns a home, you are able to acquire a home equity loan as a way to afford your child’s education. With these loans, the interest rates are based on the borrower’s credit, which typically are low. And they are usually fixed interest rates, making this loan plan extremely popular. One downside of this loan is that if you are to default on your home equity loan, you can potentially lose your home.
Another type of this loan is the HELOC loan, which stands for a home equity line of credit loan. These loans have a variable interest rate unlike the home equity loan. They can also be deducted on the borrower’s federal income tax return, but the borrower has to itemize the HELOC in order to claim it.
Frequently asked questions about college loans
How do federal student loans differ from private student loans?
Federal loans are supplied by the U.S. Department of Education, while private student loans are provided by private lenders like banks and credit unions.
The interest rates are different between both as well. Federal loans typically come with fixed interest rates whereas private loans can either have fixed or variable rates. The interest rates for the private loan are more varied because they are determined by the borrower’s credit.
Eligibility for both is different as well. Federal loans eligibility comes from the FAFSA application while private loan eligibility comes from checking the borrower’s credit and oftentimes information on employment history and incomes.
Federal loans can often offer loan forgiveness but private loans typically do not offer the same forgiveness options. Private loan forgiveness is more limited and not always provided.
When do I have to start repaying my college loans?
Repaying your college loans depends on which type of loan you have.
Direct Subsidized loans
If you have a Direct Subsidized loan, you are given a six-month grace period after graduation, when you leave school, or request a deferment. The U.S Department of Education will take care of the interest in the meantime.
Direct Unsubsidized loans
The grace period for Direct Unsubsidized loans also start after graduation or when you leave school. However, interest will accrue during this time. You can either pay the interest or let it capitalize and let it be added to your principal loan amount.
Parent PLUS loans
The repayment period for Parent PLUS loans typically begins right at the loan disbursement. You can request a deferment during the loan request process. While you are not required to make payments on this loan, the interest will accrue. Like the unsubsidized, you can either pay the accrued interest or let it capitalize.
Private Student loan
Private Student loan repayments depend on the lender and your loan agreement. Be sure to keep up with your private loan plan to make sure you are not missing your repayments.
How can Parent PLUS loans be forgiven or discharged?
There are a few different ways in which your Parent PLUS loans can be forgiven or discharged, but it is depending on the situation.
Income-Contingent Repayment
This repayment plan is for Parent PLUS loan borrowers to let them pay smaller monthly payments to ensure that the loan will be forgiven after 25 years. The only issue is, as a parent, you can only help forgive your child’s loans through this plan, as parents are not eligible for the Income-Driven repayment plan, which is only for loans in the student’s name.
This plan is also very strict, with requirements on income and having to prove annually that your income is in need of requiring lower loan payments. This could be difficult to balance and could affect potential forgiveness.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) could be another forgiveness method through the Parent PLUS loan. However, you have to have an Income-Driven Repayment Plan in order to qualify. The borrower has to work full time with an approved employer, typically for non-profit or government institutions. They have to be working there for 10 years and make 120 payments in the IDR plan, just to apply for this forgiveness plan. However, the success rate to get this plan is less than 2%.
On the other hand, the plan is not treated as a taxable event and there is no tax bill after being forgiven. Just be aware that Parent PLUS loan forgiveness is quite tricky to receive. In order to help ensure that you are able to get rid of your Parent PLUS loans, make sure to:
- Limit your debt
- Stay on budget
- Consider refinancing your loans
That’s it for our handy guide on college loans for parents!
We hope to have answered all your college loans for parents questions, but if we haven’t, be sure to speak with a financial advisor to ensure you as a parent are choosing the best possible loan option to help your child get through their college education.
