Private Parent Student Loans

For most parents, paying for children’s education can sometimes feel out of reach. With costs continually rising and daily life becoming more and more expensive, there may not be enough money to pay for college. Luckily, there are plenty of options to help pay for your child’s education. Private parent student loans are one of the most common methods for paying for a student’s education. Let’s go over everything you need to know.

What is a private parent student loan?

A private parent student loan is very similar to a normal student loan with one huge difference. Rather than the student being on the hook for the loan, the parents take full financial responsibility for taking out and repaying the loan.

These loans can be taken out for a variety of reasons. Sometimes a parent doesn’t want their children to be burdened by debt immediately after college, or maybe the family is financially stable enough to weather the added debt. Whatever the reason, these loans are a great way to help your student pay for college if they otherwise can’t afford it.

How do private parent student loans work?

A private parent student loan works nearly the same as a typical private student loan. For most first-time students, taking out a private loan will require a cosigner anyway. The only change here is that instead of acting as a cosigner, your parent will be taking on the full responsibility for the loan and the student is not responsible for any payments at all.

Taking out a private parent student loan all starts with research. There is a huge number of financial institutions offering parent student loans, so ample research must be done to ensure the best terms are received.

Applying for a private parent student loan will require the company to run a credit check on the parent, so be prepared for that.

Depending on the results of the credit check and application, you will be presented with the terms of your loan to accept or decline. Once accepted, the money will be sent directly to the school to pay for expenses rather than to the parent.

Federal vs. Private parent loans

While there are numerous private companies offering parent student loans, the federal government also has a student loan option for parents.

Federal

The federal loan option for parents is called the Federal Direct Parent PLUS loan. This is the only federal loan option that parents are eligible to take out. Here are the details:

• Fixed Interest Rate
• 10 Year Repayment Term
• A credit check is required
• The maximum loan amount is the cost of attendance minus any other received financial aid
• You must be the biological or adoptive parent of the student

Private

There is a wide range of private loan options available for parents of students. While the terms vary depending on your specific loan, here are the basics.

• Fixed or variable interest rate
• Often between 5-10 year repayment period
• A credit check is required
• Usually, you can borrow the cost of attendance minus any other received financial aid

Benefits of private parent student loans

Whereas most students are recommended to use federal loans before utilizing any private sources, this changes a bit when it comes to private parent student loans. There are numerous benefits to parents taking out private parent loans in general, and when compared to their federal counterparts.

Better terms if you have good credit

For parents that have good or great credit, a private parent student loan will often offer you better terms than the federal PLUS loan will. The PLUS loan has a fixed rate of 6.28%, and that cannot be changed regardless of how good your credit score is.

Tax-deductible interest

If you are a parent and you take out a loan on your student’s behalf, the interest you pay on that loan is tax-deductible. So while you are still required to make all the necessary payments, your overall tax bill can be lowered by utilizing these deductions.

Leave your child debt free

At the end of the day, a parent that is willing to take out a loan for their student is doing it for their child. Enabling your child to graduate college debt-free is quite an accomplishment and can set them on a much quicker path to success.

Is there a difference between taking out a parent student loan vs. Cosigning a loan?

Yes, there is a major difference between taking out a private parent student loan and being the cosigner on a normal student loan. But there are also some similarities.

The main difference lies with who is financially responsible for the loan. Taking out a private parent student loan makes the parent fully responsible for all of the loan. This means all payments, including interest, lie with the parent. The student will never be responsible for the loan in this situation.

As a cosigner, the student is still responsible for all of the payments. The only situation a parent would become responsible in this situation is if the student defaults on the loan. In that case, the loan will transfer to the cosigner.

What expenses can I pay for using a parent student loan?

With a parent student loan, all educational expenses are covered. These include, but are not limited to:

• Tuition and fees
• Room and board
• Books and supplies
• Transportation
• Study abroad
• And much more!

The payments will be made directly to the school for tuition and other fees, and any extra funds will be dispersed.

Are there alternative options to private parent loans?

While loans are the most common method of paying for college, there are other ways to pay that parents should consider. Each financial picture is unique, so be sure to only use the methods that are right for you.

• College savings plans - every state offers a form of a 529 plan, which is essentially an investment account for educational expenses. Start one early enough and watch the money grow.
• Withdraw from IRA’s or 401(k)’s - the 10% penalty imposed on early withdrawals does not apply if you are using the funds to pay for college, making this a great option.
• Home Equity Loan - Though risky, taking out a home equity loan if you are a homeowner is another option for paying for your child’s education.

Does my student need to go to school full time to qualify for a private student loan?

Most student loans, including federal and private, require the student to be enrolled as at least a half-time student, meaning half of the credit hours of a full-time student.

With that said, private loans tend to be more lenient on their terms. All federal loans have this requirement, whereas private loans can vary depending on the lender, the parent’s credit history, and other factors.

What kind of interest rates can I expect to pay on a parent student loan?

The current federal PLUS loan rate for parents is 6.28%.

For private loans, the interest rate varies widely, however, the average across the country for all parent loans is currently right above 7%.

Comparing lenders can allow you to get the most competitive rate, and they can quite often vary greatly even for the same applicant.