As a parent, it’s common to want to help your child with their college tuition and fees so they don’t have to pay for it all themselves. When it comes to paying for college, parents typically use their income and savings to pay for 30% of their child’s education costs and borrow enough money to cover an additional 10% of the expense.
There are several options for parent student loans, including federal loans and private student loans. Here’s what you need to know about parent student loans and how to choose the best one for your needs.
If you’re shopping around for parent loans for college students, your two choices are parent PLUS loans and private student loans.
1. Federal parent PLUS loans
Parent PLUS loans are part of the federal direct PLUS loan program. They are only available to biological or adoptive parents of dependent undergraduate students enrolled at least half time at an eligible school.
Unlike some other federal student loans that have caps on how much you can borrow per year, parent PLUS loan limits don’t exist. You can borrow up to the total cost of attendance at your child’s school, minus the other financial aid they receive.
The following rates and fees apply on parent PLUS loans as of 2020:
- Interest rate: 7.08% for loans disbursed on or after July 1, 2019, and before July 1, 2020
- Origination fee: 4.236% for loans disbursed on or after Oct. 1, 2019, and before Oct. 1, 2020
The parent PLUS interest rate is fixed, meaning it stays the same for the length of the loan. Your payment will stay the same, too.
If approved for a parent PLUS loan, payments are due as soon as it’s disbursed, unless you opt to defer the loan until after your child graduates, leaves school or drops below half-time enrollment. Under the default standard repayment plan, you’ll have 10 years to repay your loan.
2. Private student loans
While parent PLUS loans are federally backed by the U.S. Department of Education, private parent student loans are offered by individual banks and online lenders.
Terms and eligibility can vary widely by lender. Lenders will generally review your income and credit when they look at your application to determine whether to offer you a loan. Depending on your creditworthiness, you could qualify for a loan with a lower interest rate than you’d get with a parent PLUS loan. And private student loans for parents usually don’t have origination fees, helping you save money.
Private loans usually have different repayment options, allowing you to choose repayment terms ranging from five to 20 years. The longer repayment term can give you a more affordable monthly payment and more breathing room in your budget. Private lenders typically list both variable and fixed interest rates:
- Fixed-rate loans have the same interest rate for the life of the loan
- Variable-rate loans usually start off with a low interest rate, but — over time — the rate can change, causing your payment to fluctuate
Some borrowers opt for a variable-rate loan if they plan on paying off a loan early so they can take advantage of the initial lower rate.
The requirements for federal parent PLUS loans are often easier to meet than the criteria for private parent student loans. However, the lending requirements for private loans differ depending on the lender with which you’re working, so it’s a good idea to shop around for various lenders.
Parent PLUS loan eligibility requirements
To qualify for a parent PLUS loan, you must meet the following criteria:
- You’re a U.S. citizen or eligible noncitizen
- You’re the biological or adoptive parent of an undergraduate dependent student enrolled at least half time at an eligible school
- You don’t have an adverse credit history
While most federal loans don’t require a credit check, parent PLUS loans do. The U.S. Department of Education defines an adverse credit history as having one of the following on your credit report in the past five years:
- Default determination
- Discharge of debt in bankruptcy
- Tax lien
- Wage garnishment
- Write-off of federal student loan debt
You also can’t have one or more debt accounts with a total combined outstanding balance greater than $2,085 that are delinquent by 90 days or more, or that has been placed in collections or charged off during the two years before the date of the credit report.
If you do have an adverse credit history and are denied for a loan, there may be two ways you can regain parent PLUS loan eligibility:
- Use an endorser: If you have a friend or relative with good credit, ask them to be an endorser. The endorser acts as a guarantor on the loan. If you don’t make the payments, the endorser is instead responsible for paying them.
- Document extenuating circumstances: If there’s an extenuating circumstance, such as a timing issue regarding the foreclosure listed on your credit report, you can submit documentation and request an appeal.
If you qualify for a loan with either of these options, you’ll also have to undergo credit counseling for PLUS loan borrowers.
Private parent student loan eligibility requirements
For private student loan lenders, your credit score is a major factor in their decision in evaluating your application.
In general, you’ll need to have good to excellent credit. Lenders will also want to see that you have a low debt-to-income (DTI) ratio, or a low amount of debt relative to how much money you have coming in each month. Lenders often have minimum income requirements as well. If your credit score or income doesn’t meet their criteria, you may need a cosigner to qualify for a loan.
The application process is quite different for parent PLUS loans than it is for private parent student loans. Parent PLUS loans require your child to complete the Free Application for Federal Student Aid (FAFSA) before you can apply, while you’ll have to submit separate applications for private loans.
Parent PLUS loan application process
The application process for parent PLUS loans has two steps:
1. Fill out the FAFSA
Before you can apply for a parent PLUS loan, your child must complete and submit the FAFSA. Your child may need your help to fill out the application since you have to enter your household income and other financial information.
2. Apply for the parent PLUS loan
Once the FAFSA is submitted, you can proceed with the parent PLUS Loan application. In most cases, you can apply for parent PLUS loans online. However, some schools have a different process.
When you go to the Federal Student Aid website to fill out the application and select your child’s school, the site will notify you if the college has a different application process. If that happens, contact the school’s financial aid office and ask for next steps.
The parent PLUS loan deadline can vary by school, so check with the financial aid office to find out when applications need to be submitted.
Private parent student loan application process
Each private parent student loan lender has its own application, but you’ll generally be able to apply online in just a few minutes.
1. Gather necessary information
Lenders will ask you for basic information about yourself, including your name, address, Social Security number, employer name and address, and income. You may also be asked to submit the following documentation:
- Government-issued identification, such as a driver’s license
- Recent pay stub
- W-2 form from most recent tax year
2. Compare loan offers
It’s always a good idea to shop around and compare offers from multiple lenders to ensure you get your best rates. When looking at your options, consider the following key factors:
- Interest rate
- Interest rate type
- Length of loan term
- Monthly payment
3. Submit your application
Once you find a lender and loan terms that work for you, you can complete the full application. The lender will review the application and will perform a hard credit inquiry, which can affect your credit score. You’ll usually receive a decision quickly, but the lender may reach out to you if they need additional information or documentation.
Parent PLUS loans and private student loans also have different repayment options.
Parent PLUS loans
With federal parent PLUS loans, there are five repayment options, including one that offers parent PLUS loan forgiveness:
- Standard repayment: Under a standard repayment plan, your loans are paid off within 10 years. You have a fixed monthly payment for the duration of the loan.
- Graduated repayment: With graduated repayment, your payments start out low. Every two years, they gradually increase, but your loans are still paid off within 10 years.
- Extended repayment: When you sign up for extended repayment, your repayment term is extended to 25 years. Your payments are either fixed or graduated.
- Income-contingent repayment: Parent PLUS loans are eligible for income-contingent repayment (ICR) if they’re consolidated with a direct consolidation loan. The repayment term is 25 years. The payment is capped at 20% of your discretionary income or what you would pay with a 12-year repayment term adjusted to your income, whichever is less.
- Public Service Loan Forgiveness: If you work for a nonprofit organization or government agency, parent PLUS loan borrowers can qualify for parent loan forgiveness through Public Service Loan Forgiveness (PSLF). To be eligible, you must consolidate your loans with a direct consolidation loan and apply for an ICR plan, then work for an eligible employer for 10 years and make 120 qualifying monthly payments.
Private student loans
Your repayment options for private parent student loans are dependent on which lender you choose. In general, your repayment terms can range from five to 20 years. Some lenders require you to start making payments while your child is still in school, while others allow you to defer payments until after your child graduates or leaves college.
Private student loans aren’t eligible for loan forgiveness, so you can’t qualify for PSLF even if you work for a nonprofit organization or the government.
Parent PLUS loans vs. private loans: Which are right for you?
|Parent PLUS loans||Private parent student loans|
|Pros||● Eligible for loan forgiveness
● Eligible for federal loan deferment and forbearance
|● Competitive interest rates
● Variable interest rates
● May be dischargeable if the student dies or becomes permanently disabled
|Cons||● Not dischargeable if the student is permanently disabled
● Relatively high interest rates
|● Not eligible for loan forgiveness● Limited repayment options|
If you’re not sure which loan type is best for you, there are three key differences that can help you make an informed decision.
Parent PLUS loans have the highest interest rates of all federal student loans. If you have good credit and a low DTI ratio, you may be able to qualify for a private parent student loan with a lower interest rate, helping you save money. And private student loans can come with variable rates, which may give you more options.
Private loans aren’t eligible for loan forgiveness, so if you work for a nonprofit organization or government agency, you may be better off with parent PLUS loans. By consolidating your debt with a direct consolidation loan and enrolling in an ICR plan, you can qualify for PSLF and have your loans forgiven after 10 years of working for an eligible employer and making qualifying payments.
However, you should know that few people qualify for PSLF. As of December 2018, just 262 out of over 38,000 applicants qualified for loan discharge through PSLF. You can use the federal PSLF Help Tool to assess your eligibility, find out whether your loans and employment qualify for PSLF and figure out what forms to submit.
Discharge in cases of disability
If your child becomes totally and permanently disabled, the type of loan you have will affect your options. Parent PLUS loans can only be discharged if you die, your child dies or if you — the borrower — become permanently disabled. If your child is the one who becomes disabled, your loans aren’t eligible for discharge.
Policies for private student loans vary by lender. Some private lenders — such as Wells Fargo and Sallie Mae — will discharge your parent student loans if your child becomes totally and permanently disabled, eliminating a serious financial burden and giving you some relief.
If you need help choosing a parent student loan, use our Student Loan Term Comparison Calculator to compare your options and see whether a private loan or parent PLUS loan is most cost-effective for you.
Elyssa Kirkham and Meredith Simonds contributed to this report.
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1 Important Disclosures for College Ave.
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.
Information advertised valid as of 7/1/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
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Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
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UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.76% annual percentage rate (“APR”) (with autopay), variable rates from 1.90% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.83% APR (with autopay), variable rates from 1.80% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.11% to 11.81% APR (with autopay), variable rates from 1.78% to 11.72% APR (with autopay). PARENT LOANS: Fixed rates from 4.23% to 11.26% APR (with autopay), variable rates from 1.90% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 07/10/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).
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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). 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. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
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