Best Parent Loans For College Of July, 2024
Compare private parent student loans. Checking rates won’t affect your credit score
Best Parent Loans for College
As a parent, a lot of our life revolves around providing for our family. Whether it is by providing a secure place to live, putting food on the table, or something else - our children often take priority over everything else. When planning for the future of your children, education is often the first thing that comes to mind. Continue reading to learn more...
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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.
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Can a parent loan be transferred to a student?
A parent loan cannot be transferred to a student. This is part of the risk of taking on the parent loan yourself rather than cosigning a student loan.
With that said, students are sometimes able to take out a refinanced student loan that can be used to pay off their parent’s loan, although this is not usually recommended.
Can parent student loans be refinanced?
Yes, parent student loans can be refinanced.
Even federal PLUS loans are often able to be refinanced through a private lender. Refinancing can often save you money by offering lower interest or more ideal payment terms.
Private loans can also be refinanced depending on the lenders you are looking to refinance with.
How does loan repayment work on a parent student loan?
Loan repayment on a parent student loan differs depending on the lender and specific loan terms that you receive upon approval.
In general here's what you need to know about repayment terms:
- Grace Period: Some parent student loans may offer a grace period, which is a period of time after the loan is disbursed during which payments are not required. The length of the grace period can vary between lenders. However, it's important to note that interest may continue to accrue during this period.
- Repayment Term: The repayment term is the length of time over which the loan must be repaid. It is typically stated in months or years. The repayment term can vary depending on the lender and the specific loan agreement. Common repayment terms for parent student loans range from 5 to 20 years.
- Monthly Payments: Generally, parent student loans require monthly payments. The amount of the monthly payment will depend on factors such as the loan amount, interest rate, and repayment term. Private parent student loans typically have fixed interest rates, meaning the interest rate remains the same throughout the repayment period, unless stated otherwise in the loan agreement.
- Interest Accrual: Interest accrues on the loan principal amount over time. The specific interest rate and how it is calculated should be outlined in the loan agreement. Interest can be calculated in different ways, such as simple interest or compound interest. It's important to understand how the interest is calculated to determine the overall cost of the loan.
- Repayment Options: Private parent student loans may offer different repayment options. Common options include making full monthly payments throughout the repayment term or opting for graduated payments, where the payments start lower and gradually increase over time. Some lenders may also offer the option to make interest-only payments while the student is in school.
- Prepayment and Extra Payments: Review the loan terms to understand whether there are any penalties for prepayment or if you can make extra payments to pay off the loan faster. Making additional payments can help reduce the overall interest paid and shorten the repayment period.
- Late Fees and Default: It's important to make payments on time to avoid late fees and prevent the loan from going into default. Defaulting on a loan can have serious consequences, including damage to credit scores and potential legal action by the lender.
What are the requirements to qualify for a private parent student loan?
The specific requirements to qualify for a private parent student loan may vary depending on the lender. However, here are some common criteria that lenders typically consider when evaluating applications:
- Creditworthiness: Lenders assess the credit history and credit score of the parent applying for the loan. A good credit score and a positive credit history increase the chances of approval. Some lenders may have minimum credit score requirements.
- Income and Employment: Lenders usually require the parent to have a stable source of income to ensure they can make the loan payments. Employment verification or proof of income, such as pay stubs or tax returns, may be required.
- Citizenship or Residency: Typically, the parent must be a U.S. citizen, a permanent resident, or have eligible noncitizen status to qualify for a private parent student loan.
- Age: There may be age restrictions for the parent borrower, and some lenders may require the borrower to be at least 18 years old.
- Student Enrollment: The student for whom the loan is being taken must be enrolled at least half-time in an eligible educational institution. The lender may request documentation or verification of the student's enrollment.
- Loan Amount: Lenders may have minimum and maximum loan amount requirements. Ensure that the loan amount you need falls within the lender's limits.
- Debt-to-Income Ratio: Lenders consider the parent borrower's debt-to-income ratio, which is the amount of debt compared to their income. A lower debt-to-income ratio is generally more favorable for loan approval.
How to apply for a private parent student loan
Applying for a private parent student loan involves the following steps:
- Research and compare reputable lenders offering private parent student loans.
- Gather necessary information and documents, such as personal identification and proof of income.
- Check for prequalification options or proceed with the loan application.
- Provide required documentation as instructed by the lender.
- Undergo a credit check and await approval.
- Carefully review the loan offer, including terms, interest rate, and fees.
- Accept the loan offer by following the lender's instructions.
- Funds will be disbursed directly to the school for the student's account.
- Understand the repayment plan, including monthly payments and term.
- Set up a payment schedule and make timely payments to avoid penalties.
It's important to note that private parent student loans are subject to the lender's specific requirements and terms. Make sure to carefully review and understand all the terms and conditions before committing to a loan. Consider consulting a financial advisor or reaching out to the lender directly if you have any questions or concerns during the application process.
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Loan rate & terms disclosure: Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time.
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