Understanding Parent Student Loans

As a parent, navigating the financial aid process can certainly be challenging. You want to make sure that you find parent student loans that make financial sense and meet the needs of your family. Although this site is mainly dedicated to private loans, we encourage you to check out our Financial Planning section to learn more about financial aid options and processes.

Can you guide me through the different types of parent student loans?

Wait. Before you take out any parent student loans, make sure your child has maximized free money (grants and scholarships) and low interest federal student loan (The Federal Stafford Loan) funds. If you are still in need of money, and you don't want to use your cash and savings, it's time to research parent student loans.

Ready to research parent student loans?

There are really two borrowing options specifically designed with the parent of a college student in mind:

1. Parent PLUS Loans
   Parent PLUS Loans truly are "parent student loans" because the loans remain in the parent's name, and the parent is responsible for paying them back. Parent PLUS Loans are backed by the federal government, with a fixed interest rate of 8.5% (7.9% through the Department of Education). There are also origination fees of up to 4%. All federal loans, including Parent PLUS Loans, come with some great deferment protections and repayment plans. In addition, for Parent PLUS loans disbursed on or after July 1, 2008, you can choose to defer payments on your Parent PLUS Loans until 6 months after you child leaves school. Remember, Parent PLUS Loans require you to pass a credit check.
2. Private loans with co-signer
   Private loans are not truly "parent student loans" because the loan is in the student's name. However, most students cannot obtain a private loan without a credit-worthy co-signer, so that's where you as the parent come in. Once you become a co-signer on a private loan, the loan appears on your credit and you too are responsible for making sure it gets paid back. If your child fails to make payments on the loan, it could affect your credit (similar to if you have ever co-signed a car loan for your child). The credit standards to get approved for a private loan may be stricter than Parent PLUS Loans, especially in today's financial environment. If you have great credit, you could help your child obtain a good interest rate and reduce the fees charged when the loan is disbursed. You can learn more about becoming a co-signer in our Understanding Credit

Are there other options besides parent student loans?

A few years ago, some parents used home equity or 401(k) loans and withdrawals to pay for their child's college education. In today's financial environment, these two options may be less popular. Home equity loans have become more difficult to qualify for due to decreases in home values and an increase in credit standards. Parents who have suffered significant losses in their 401(k) account may find it difficult to deplete those funds further, on top of paying any applicable taxes and withdrawal penalties.