What is a Parent Student Loan & How Do They Work?
If you’re pitching in financially for your child’s education, you’ll want to explore all of your options. It can seem like an overwhelming process–but we’re here to help you navigate the ins and outs of finding the student loan that fits your family’s budget, and that may include parent loans.
What is a Parent Student Loan?
A parent loan is a loan available to parents and guardians who want to take on the full responsibility of paying for college.
One of the main benefits of a parent loan is being able to take advantage of your strong credit score and steady income to find a loan with a low-interest rate and competitive repayment plan. You may also be able to deduct all or a portion of the interest paid on parent student loans, federal or private, from your taxes if your child is filed as your dependent. Learn more about deducting loan interest and make the most of your financial decisions.
You can also help ease the cost burden on your child or dependent by covering a portion of their college costs through a parent loan—so they can focus more on their studies and prepare for a successful future.
Let’s dive into the student loan options for parents and the pros and cons of each. We’ll start with federal options:
Direct PLUS Loans (Parent PLUS)
The Direct PLUS Loan, commonly referred to as the Parent PLUS, is federal aid that is funded by the U.S. government and available to eligible parents through schools participating in the Direct Loan Program. It is the only federal student loan for parents. The Direct PLUS program offers a fixed interest rate, which means it will not change throughout the life of the loan.
The Parent PLUS Loan can be used for tuition, fees, and room and board—but any loan credit balances can be deposited to the parent or the student to pay for any extra education expenses. All of these options can help you feel more secure about how and where college loan funds are being spent.
How do I apply for a Direct PLUS (Parent PLUS) Loan?
Student eligibility for federal aid is determined through completion of the Free Application for Federal Student Aid (FAFSA) and is a requirement for the Parent PLUS loan. Once the FAFSA has been submitted, you should then apply for the Federal Direct PLUS Loan through the U.S. Department of Education’s federal aid website. It is highly recommended that you contact the financial aid officer of each institution where your child is applying, as some schools have varying processes and procedures for obtaining and filing these applications.
The application includes your personal and financial information. You will need to use the same Federal Student Aid ID provided on your student’s FAFSA form on the application. You will also need to select all of the schools your child has applied or is applying to, so they can review your information. It is then up to the institution to determine if you are to be granted a loan through the program.
A credit check is part of the application process, so it’s important to note that you cannot successfully complete the application if you have a freeze on your credit file. All freezes must be lifted from each credit bureau before applying.
What are Private Parent Loans?
If your student is in need of financial support beyond federal student aid, a private parent loan may be the right choice for your family–especially if the parent has strong credit. A private loan is issued by a non-government entity like a bank or credit union and is offered based on the borrower’s creditworthiness.
When you apply for a private parent loan, you are the sole borrower. Your eligibility is determined through a number of factors including, but not limited to credit score, income, and employment history. Learn more about the differences between federal and private aid to determine the best options for you and your family.
Want to make sure those loan dollars are going towards books and lab fees instead of late-night pizza delivery? College Ave offers an option in which you can elect to have $2,500 immediately disbursed to your bank account, so you can cover any education related expenses like books, dorm equipment and computers.
With a College Ave Parent Loan, you can also determine the length of repayment—between five and 15 years. Save more overall by paying more of the principal balance each month and spending less on interest, or, have lower monthly payments, but pay more over time on interest. Depending on your long- and short-term financial goals, we can help you find a repayment option that works for you—giving you peace of mind and wallet.
If you are considering the private loan route, you may also be looking into cosigning a student loan with your child. Let’s take a closer look into that process as well as the benefits and financial outcomes.
What’s the difference between cosigning and taking out a parent loan?
Parents can opt to cosign a private student loan or take out a parent loan to help pay for your child’s education. Unlike cosigning a private student loan, federal Parent PLUS Loans and private parent loans are the full financial responsibility of the parent. When you cosign a private student loan, you’re taking equal responsibility with the borrower (student) and are providing your financial background to help guarantee that the loan will be paid back. You are a 50/50 partner, whereas taking out a parent loan makes you the sole borrower.
If you’re still thinking about whether you should cosign a student loan or take out a parent loan on your own, try our free credit pre-qualification tool. It doesn’t affect your credit score and you can see the rates you could personally expect to help you decide which loan type is the best fit for you.
Want to learn more about the differences between and the benefits of cosigning vs. taking out a parent loan? Read more here.
Whether you take out a federal Parent PLUS Loan, a private parent loan or cosign a private student loan, you can help your child pay for college. It’s important to explore all of your options, talk to loan providers and consult with university financial aid officers to make smart financial choices for you and your family.
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