For parents who want to help their child pay for college, parent student loans can fill the gap between college savings and actual costs.
Of course, taking out parent student loans is a major decision that can affect your finances for the next decade or longer. That’s why it’s important to find the best option for you today — so you can keep this debt affordable and manageable for years to come.
Use this guide to parent student loans to discover the best way to fund your child’s education.
3 options for parent student loans
Parents looking to borrow for their child’s college costs have three main options:
- Parent PLUS Loans: These federal student loans for parents are financed and disbursed by the U.S. Department of Education.
- Cosigned private student loans: The college student is the primary borrower, and the parent is the cosigner.
- Private parent student loans: These loans are offered by private lenders. The parent is the only borrower on these loans.
Read on to find out more about each one.
|Type of Loan||Requirements||Pros||Cons|
|Parent PLUS Loans||The parent and student must submit a FAFSA to establish eligibility for PLUS Loans. These loans are held by the parent only. To get PLUS Loans, the parent must not have adverse credit, but it can be easier to qualify for PLUS Loans than private parent student loans.||As federal student loans, they include some borrower protections, such as eligibility for income-driven repayment plans or deferment.||Parent PLUS Loans carry some of the highest federal student loan rates and charge a high fee.|
|Cosigned Private Student Loans||The parent and student apply for this loan together, with the parent as the cosigner of this debt. The loan is owned equally between the student and parent, and the parent has a responsibility to repay this debt if their child can’t.||Interest rates can be competitive for well-qualified parents. Some lenders offer the option to release a cosigner from the loan.||Parents are responsible for this debt, and any missed or late payments could damage their credit.|
|Private Student Loans||The parent alone will apply for and own these student loans. Only creditworthy parents with a sufficient income and positive credit history will qualify.||Interest rates can be competitive for well-qualified parents. Parents can get necessary financing without adding to their student’s debt.||This product isn’t widely offered, so choice in lenders might be limited. Because of stricter lending criteria, not every parent will qualify for these student loans.|
1. Taking out Parent PLUS Loans
To qualify for a Parent PLUS Loan, you’ll need to meet certain eligibility requirements:
- Complete and file a Free Application for Federal Student Aid (FAFSA). Based on the information you provide on the FAFSA, your need for aid will be evaluated.
- Not have an adverse credit history. Unlike federal student loans offered directly to students, Parent PLUS Loans take the borrower’s credit history and score into account. See a full explanation of what the Federal Student Aid Office views as adverse credit.
- Be the parent or guardian of a dependent college student. This dependent can be a biological child, adoptive child, or possibly a stepchild under 24 who is currently enrolled in college at least half time.
- Have a need for a Parent PLUS Loan. You can borrow Parent PLUS Loans only for college costs that aren’t covered after all other student aid is applied.
Your child’s financial aid award letter might list Parent PLUS Loans as part of the financial aid package along with instructions on how to apply for Parent PLUS Loans.
If not, you can contact their college’s financial aid office to find out how they handle Parent PLUS Loans, whether you’re eligible for Parent PLUS Loans, and how much you can borrow.
Pros and cons of Parent PLUS Loans
Parent PLUS Loans offer some federal student loan benefits private lenders don’t.
For example, Parent PLUS Loan repayment options include the following:
- Deferment or forbearance because of unemployment or other financial hardship
- Lower monthly payments through an Income-Contingent Repayment Plan, which includes forgiveness of any balance remaining after 25 years
- Public Service Loan Forgiveness for any remaining balance after 10 years of on-time payments for borrowers who meet the requirements
Parent PLUS Loans likely will be the easiest type of parent student loan to qualify for and receive. Even though Parent PLUS Loans require that you don’t have adverse credit, the Department of Education has few other lending requirements.
Here are a couple of downsides to Parent PLUS Loans:
- Parent PLUS Loans don’t automatically defer payment until six months after the student leaves school. Instead, repayment kicks in once the loan is disbursed. However, you can request to defer Parent PLUS Loans for as long as your child is in school and up to six months after their enrollment ends.
- Parent PLUS Loans have high interest rates compared to other federal student loans and even cost more than some private student loans. For 2017-18, the interest rate is 7.00% — compared to 4.45% for Subsidized Direct Loans and Unsubsidized Direct Loans for undergraduates. An additional 4.276% loan fee is taken out of funds upon disbursement.
Parent PLUS vs. private student loan interest rates
Although Parent PLUS Loans carry the same interest rate for every borrower, private student loan lenders typically offer better rates for well-qualified individuals.
Private student loan rates start at around 3.00%, which means well-qualified parents might find a better deal with private student loans than the 7.00% interest rate and 4.276% loan fee offered by Parent PLUS Loans.
Below is a comparison of borrowing $10,000 through a Parent PLUS Loan versus a private student loan with a 5.00% interest rate and no origination fee:
|Parent PLUS Loan||Private Student Loan|
|Initial balance||$10,500 (including loan fee)||$10,000|
|Total cost of 10-year repayment||$14,630||$12,728|
Given the assumptions above, choosing a private parent student loan would save you $1,902.
2. Becoming a parent cosigner on student loans
Whatever amount you’re coming up short on, a private student loan likely will be able to cover it. You also won’t have to deal with the lending limits of federal student loans.
Cosigning private student loans is a common way to get college financing. With this option, the student is the main or primary borrower of the student loan and the parent is the cosigner. You’ll need a good credit score and a steady, decent income history to qualify as a cosigner for private student loans.
Here are some private lenders that offer cosigned student loans:
Pros and cons of cosigning private student loans
There are several benefits of choosing to cosign with your child:
- Cosigning can be a way to help your child access private student loans and better rates they might not qualify for on their own.
- Some private student loan rates beat federal student loan rates, which could save you money.
- Usually, there is the understanding that your child will take primary responsibility for repaying the loan. For parents planning for their child to repay at least some of a parent student loan, cosigning can be a smart option.
- Many lenders offer cosigner release after your child makes a certain number of on-time student loan payments. Check with lenders to see what their terms are for a cosigner release.
When you cosign a private student loan, you agree to equal liability and responsibility for repayment of this student debt. That fact leads to some of the biggest cons of cosigning:
- If your child can’t make payments or defaults, the lender will come to you to settle the debt.
- Your credit will be impacted by the payments you and your child make on the loan — for better or worse. If you’re not the one making payments, you might be unaware or unable to prevent missed payments, which can hurt your credit.
- You’ll need good credit to get the best rates; otherwise, you and your child could end up paying more to borrow for college.
3. Taking out private parent student loans
Private student loans are another option for parents looking to finance their child’s education.
Parents can cosign private student loans with their child or take advantage of private parent student loans. The latter are student loans in the parent’s name only. They allow you to finance your child’s education without adding to their student loan burden.
Private parent student loans are offered by private lenders, including banks, credit unions, and financial tech companies. Here are some lenders that offer private parent student loans:
If you’re considering this option, watch out for these potential drawbacks:
- If your credit score is less than stellar, you still might be able to qualify for a private student loan. But the worse it is, the higher your interest rate will be. You’re less likely to benefit from a private student loan over a Parent PLUS Loan.
- You are solely responsible for this debt and have complete control over payment.
- The terms and rates on parent student loans might differ from those on a traditional loan to a student. So you could end up with a higher interest rate on a private parent student loan than on a cosigned a loan, and you might face more limited options.
- Your child has no responsibility to repay this loan, and there’s no way to legally transfer it to your child’s name. You’ll be repaying this debt, so avoid borrowing more than you can afford to repay.
Carefully choose your terms for parent student loans
While Parent PLUS Loans offer the same terms to all borrowers, private lenders provide a wider range of student loan terms from which to choose.
Pay attention to terms and pick those that will be most beneficial to you. Here are the private student loans terms to decide on before you apply.
Requirements for private parent student loans
Each private lender has its own set of eligibility requirements and loan options. So finding the right parent student loan often means choosing the right private student lender.
Here are some eligibility requirements to keep in mind as you search and apply for private student loans:
- Credit score and history: Most lenders will require that parents taking out student loans have a good credit score and history. You’ll usually need a credit score of 650 to 680 or higher to qualify for private student loans. However, some lenders have more flexible standards.
- Employment history and income: Private lenders will want to see that you have stable employment and a high enough income that you can afford to repay a private student loan.
- Debt-to-income ratio: In addition to looking at your income, lenders also will compare it to other debts you have via your debt-to-income ratio. A low debt-to-income ratio (ideally around 35 percent or lower) is a sign that you’re responsibly managing your debts and can afford to borrow more.
If you can meet those requirements, you have a good chance of being approved for private parent student loans.
Variable or fixed student loan interest rates
Parent PLUS Loans have fixed interest rates, which don’t change over the life of the loan. But private parent student loans offer you the choice between variable rates and fixed rates.
Variable rates are usually lower than fixed rates, but they can rise over the life of the loan. With overall interest rates rising, borrowers can expect their variable-rate student loans to become more expensive.
Parents can decide for themselves if the lower variable rate now is worth the risk of paying more later.
Repayment length and options
The right student loan term is also crucial. A longer student loan term will mean paying more in interest over time and could come with a higher interest rate. But you also want to choose a loan term that will keep monthly payments affordable.
While federal student loans come with flexible payment options, that isn’t the case for private parent loans for college students. With no income-driven repayment plans or formal deferment or forbearance programs, choosing an affordable term is even more important.
Some private lenders offer different options to manage student loans. As part of your parent student loan research, check whether a lender offers deferment, forbearance, or repayment protection — and under what circumstances.
Shop around for the best parent student loans
Student loans for parents are nothing to be entered into lightly. But if you have a working knowledge of your options, then you’re on the right track.
Look at limits, interest rates, fees, and terms. There are parent student loans out there that can be custom-fitted to your needs and preferences; you just have to look for them.
At Student Loan Hero, we keep a running tab of the best student loans. Check out the table below for comparison.
Parents, here’s the bottom line: College can quickly become expensive — but borrowing doesn’t have to add much to the costs. Be sure to look at all your financing options before making a final decision on parent student loans.
Meredith Simonds contributed to this article.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of TCM and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.82% – 12.82%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|3.88% – 12.88%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.04% – 12.01%9||Undergraduate, Graduate, and Parents||Visit Citizens|