Parent Loans or Student Loans ? what is going to be best for my child?
At least 20% of college students need some type of loan to help pay for their
college education. Such a statistic can lead to students graduating with an
unmanageable debt load. An alternative is for parents to help out by taking out
loans themselves. But which is the better option ? student loans or parent
loans? Each has distinct advantages and uses.
Federal student loans
Federal student loans have the lowest interest rates and best repayment
options. If you need to take out loans and you qualify for federal loans, this
is your best choice. Just be sure to accept only the funds you need, even if you
are offered much more. Parents can always help their children pay off these
loans once repayment begins after graduation.
Federal parent loans
PLUS Loans (Parent Loan for Undergraduate Students) are another loan option
that comes with low interest rates. If you are a parent with dependent students
attending college at least part-time and you have a good credit history, you are
eligible to receive a PLUS Loan. These loans are not needs-based. You can borrow
up to the total cost of undergraduate education expenses, minus other financial
aid already received. Unlike federal student loans, payment is not deferred
until after graduation; instead, your first loan payment will be due about 60
days after the loan is disbursed. Also unlike federal student loans, PLUS Loans
require an application fee.
Private loans
Both students and parents can take out private loans to cover funding gaps.
Terms are basically the same for these loans, although students may be able to
have their repayment deferred until after graduation. Another consideration is
that students may wish to take out small loans to begin to establish a credit
history. You may need to cosign for private student loans.
Other options
Parents do have some additional options for college funding, such as home
equity loans. These often have rates as good as private loans.
So which type of loan should I get?
This really comes down to a personal decision. Ask yourself these questions
as you are trying to decide:
- What level of debt do you feel is manageable for your child to graduate
with?
- How important is it to you that your child takes responsibility for paying
student loans?
- Will you and your child work out a repayment plan to repay PLUS Loans and
other parent loans?
