Knowing how to apply for a student loan is vital if your children are getting ready to go to college. Around 27 percent of all college costs are paid for with borrowed money, according to Sallie Mae’s 2017 report, “How America Pays for College,” with parents making up nearly 30 percent of those borrowers.
When a student exhausts all federal student loan options, they can apply for private student loans to cover any gap in funding. However, private lenders, unlike the federal government, all have their own underwriting criteria and credit requirements. Often, college students don’t have the credit history or income to qualify for these loans — but their parents do.
“Parents should borrow to pay for a child’s college education only after the child has exhausted his or her eligibility for the Federal Stafford Loan,” according to student loan expert Mark Kantrowitz.
To help fill remaining financial aid gaps, parents can apply for a federal Parent PLUS Loan or for private student loans for parents. Read on to find out when you should apply for private loans, which lenders offer private student loans to parents, and what information you need for a parent loan application.
Applying for private student loans as a parent
Before applying for private student loans as a parent, it’s important to make sure that applying for a loan is a good financial decision for your family.
“Parents should borrow no more in total for all their children than their annual income,” Kantrowitz advised. “If total parent loan debt is less than parents’ adjusted gross income, the parents can afford to repay the parent loans in 10 years or less.”
You’ll want to make sure that you have a good credit score so you can get approved, as well as receive the most favorable interest rate in the case of private student loans. Check out our guide to getting your FICO credit score for free — the score used by most lenders when evaluating loan applicants.
Kantrowitz also suggests getting a copy of your credit report before applying (you can access your reports from all three credit bureaus for free at annualcreditreport.com). Although you can’t view your credit score on your credit report, checking your reports ahead of time will give you the chance to fix any errors that could hurt your score and prevent you from qualifying for a loan or more favorable terms.
After assessing your situation, you can move on to the next step of determining if a private loan is your best option.
Parent PLUS Loans vs. private student loans for parents
You might be eligible to obtain a Parent PLUS Loan through the Department of Education to cover educational costs for a dependent child. They need to be enrolled at least half-time in an eligible school and working toward an undergraduate degree.
As a parent, you can borrow up to the cost of attendance as determined by the school, minus other financial assistance that you or your child receives. However, weigh pros and cons of PLUS loans versus the pros and cons of private loans. Some key things to consider:
- Credit: Both private student loans for parents and Parent PLUS Loans consider a parent’s credit. However, Kantrowitz advised that private lenders usually have stricter criteria for approvals than Parent PLUS Loans. All PLUS loans check for is an “adverse credit history,” which, according to Kantrowitz, includes payments that were 90 days or more delinquent on more than $2,085 in debt during the prior two years, or a derogatory event such as a foreclosure or bankruptcy within the past five years.
- Interest rate: Both private loans and Parent PLUS Loans charge interest. The interest rate for all Parent PLUS Loans disbursed between July 1, 2017, and July 1, 2018, is 7.00%. Individual lenders set interest rates on private student loans, which vary according to the credit profile of each applicant. Parents with excellent credit might qualify for lower fixed interest rates from private lenders than through Parent PLUS Loans, according to Kantrowitz.
- Fees: There is a 4.264 percent origination fee for Federal Parent PLUS Loans for the 2017 to 2018 school year. Many private lenders, however, do not charge any fees, according to Kantrowitz.
There’s one benefit for parents to apply for a Parent PLUS Loan, even with bad credit. “If a parent is denied a Federal Parent PLUS Loan, the student can become eligible for the higher unsubsidized Federal Stafford loan limits available to independent students,” Kantrowitz said. “Some families prefer this, even though the limits are only $4,000 or $5,000 a year higher.”
If, as a parent, you’re concerned you don’t have good enough credit to qualify for a federal or private loan, you may wish to apply for a Parent PLUS Loan to see if you can help your child to get this extra access to federal funds.
How to apply for private student loans for parents
Once you’ve taken advantage of all the federal aid your family has available, and you’ve decided taking out a private student loan as a parent is the best choice for covering your child’s college costs, it’s time to apply.
1. Gather the information needed for parent loan application
The nice thing about applying for private student loans is that it can be done online. Before you begin the application process, you should gather the information needed for a parent loan application. This can include:
- Your name, address, Social Security number, and contact information
- Information about your income and work history
- Your child’s Social Security number
- Information about the school your child will be attending, including the state, grade level, and field of study
- The cost of attendance for the college program your child will be attending
- The estimated amount of financial aid your child will receive
- The anticipated college graduation date for your child
- The information about what academic term the loan will be used to pay for
Sallie Mae indicates the online application process takes around 15 minutes. It’s a good idea to get your paperwork in order before you begin the process of applying for a private loan. However, lenders will allow you to save an application so you can return to it and complete it later if you don’t have all the documentation you need at hand.
2. Compare private student loan offers
If you decide that applying for a private student loan is the right choice for you as a parent, you need to understand the practicalities of how to apply for a student loan.
First and foremost, this means finding a lender. There are a number of different private student loan lenders that will loan money to parents to pay for their children’s education. Some of these private student loan lenders include:
- SoFi personal loans: SoFi personal loans offer low fixed interest rates ranging from 6.99% to 14.87%. Variable rates range from 6.26% to 12.56% with autopay. Parents can choose three-, five-, or seven-year repayment terms.
- College Ave private loans: The College Ave private loan offers fixed interest rates of 5.29% to 12.07% and variable rates of 3.69% to 10.94%. Repayment terms range from eight years to 15 years.
- Sallie Mae private loans: Sallie Mae offers a fixed interest rates of 5.74% to 11.85% and varied interest rates of 4.12% to 10.98%. Repayment terms range from five years to 15 years.
It’s important to shop around and get offers from several private student loan lenders before going through with the full application. This will allow you to find the best rates and terms available without performing a hard pull on your credit.
3. Submit your application
Once you make a final decision on the best loan offer, submit your application. At this point, the lender will perform a hard credit inquiry, evaluate your credit history and financial profile, and notify you of whether your application is approved or denied.
If you are approved for the loan, you will need to sign the loan paperwork electronically and the funds will then be disbursed.
If you are denied a private loan for your child, you may be able to appeal the decision. You could also consider applying with cosigner who is willing to cosign loans for you or for your child.
4. Make a plan to repay private student loans
If you’re a parent who is thinking about taking out private student loans for your children, repaying these loans might be a top priority after your son or daughter graduates. Fortunately, you have options to get this debt taken care of.
There are many great lenders that will allow you to consolidate or refinance Parent PLUS Loans. Consolidating or refinancing could potentially lower your interest rate so you could save money on repayment.
If you have taken out private loans and your children can repay them, refinancing those loans into your children’s names could be a good option if your children have good enough credit to qualify for a loan. You could also be aggressive about making extra payments for loans you’re responsible for paying back so you retire the debt as soon as possible.
The key is to find a plan that works for you so you can try to student debt taken care of and your retirement without worrying about owing money to student loan lenders.
Interested in refinancing your Parent PLUS loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for CommonBond.
5 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Visit SoFi|
|2.47% – 6.23%1||Visit Earnest|
|2.95% – 6.37%2||Visit Laurel Road|
|2.48% – 6.25%4||Visit CommonBond|
|2.72% – 8.32%5||Visit Citizens|