Parent
Loans or Student Loans – what is going to be best for my
child?
by: Vanessa McHooley
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?
This
article is distributed by NextStudent. At NextStudent,
we believe that getting an education is the best
investment you can make, and we're dedicated to helping
you pursue your education dreams by making college
funding as easy as possible. We invite you to learn more
about Parent Loans or Student Loans at
http://www.NextStudent.com
