Student loan options for parents
One of the most challenging aspects of college is figuring out how to pay for it. For many students and their parents, student loans may be required to cover any outstanding school charges. With so many student loan options, a parent might wonder which student loan is the best choice. Here’s a look at some of the options available.
Federal Direct PLUS Loans for parents
With the Federal Direct PLUS Loan program, a parent can take out a loan for the benefit of the student. The maximum amount a parent can borrow is the cost of attendance minus any other financial aid received. Unlike some private student loans, Federal Direct PLUS Loans charge an origination fee (which is a percentage of the amount borrowed). So if your tuition bill is $10,000, you will want to request $10,000 plus the amount needed for the origination fee to cover the balance.
As a parent borrowing through the Federal Direct PLUS Loan program, repayment typically begins 60 days after the full amount of the loan is paid out. You may request to have payments deferred while your child is enrolled at least half-time, and for six months after leaving school. It is important to note that interest will still accrue during the deferment period, increasing the total cost of the loan. The standard repayment length is 10 years, but there are a number of repayment options.
Private student loans
With private student loans, the borrower is usually the student, while a parent may apply as a cosigner on the loan. Some lenders also offer loan options for parents to borrow on the student’s behalf, like a PLUS Loan. Unlike the fixed interest rate of a Federal Direct PLUS Loan, which is the same for every borrower, private student loan interest rates are based on the borrower’s creditworthiness. Since most college students have a limited or nonexistent credit history, applying with a creditworthy cosigner can increase the chances of approval, and may offer a lower interest rate compared to what they would receive on their own. Private student loans vary depending on the lender, but many offer both fixed and variable interest rates. A variable interest rate means it can change over the life of the loan. While this variable rate may be initially lower than a Federal Direct PLUS Loan, it may increase over the life of the loan. Maximum loan amounts for private loans are usually higher than federal loans, but each lender has their own set limits.
Repayment options may vary by lender, but typically private student loans offer a few different choices, including:
- Interest-only payments: payments only on the interest of the loan while the student is enrolled in school at least half-time, and for six months after leaving school
- Immediate repayment: full principal and interest payments beginning about 60 days after funds are disbursed
- Full deferment: no payments while the student is enrolled at least half-time, and six months after graduation
With any option, interest will continue to accrue until the loan is paid off.
With student loans, research and planning are the pillars to success. Whether you are a parent or a student, be sure to carefully evaluate all available options when preparing to take out a student loan.
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