When considering and applying for student loans, help your child understand the entire process, including the responsibility for repayment, and then look into your best options for financing. The lowest rate student loans with the most flexible terms are from federal loans such as direct loans and Perkins Loans. While these are always the first choices in paying for college, they may not offer enough financing to pay for all college expenses, and parents may need to step into help. Thankfully, there are financing options for parent borrowers to help fill the gap.
If your undergraduate student needs help paying for college expenses, you can assist by taking out a federally backed PLUS loan. An option exclusively for parents, federally backed PLUS loans are a good way to cover remaining tuition and other expenses after exhausting all other financial aid options.
Here is what you need to know about Federal Student Aid's PLUS loans:
- Because the U.S. Department of Education is the lender, you must complete the Free Application for Federal Student Aid (FAFSA) to receive a PLUS loan
- Biological, adoptive and sometimes stepparents of a dependent undergraduate student can take out PLUS loans
- Even though the loan is for your undergraduate student, it’s in your name, and you’re responsible for repaying it. You can’t transfer the loan at a later date to your child.
- You may be denied a PLUS loan if your credit history is poor
- The maximum amount you can borrow is the cost of attendance (as determined by the school) minus any other financial assistance received
- Interest starts to accrue on PLUS loans as soon as the lender issues payment to the college
- A loan origination fee (usually about 4.3 percent of the loan amount) will be deducted from the principal at each payout
- You may start to repay a PLUS loan as soon as the lender releases funds to your child’s school, or you can defer (postpone) payments until after your child graduates. If you choose deferment, interest will still start to accrue as soon as the lender releases the funds.
- You must reapply for a PLUS loan every year
- You may pay off a PLUS loan early without paying a penalty
Private Student Loans
Private student loans from lenders such as credit unions and banks can be a good way to pay for educational expenses not covered by federal loans, scholarships and grants. Here is what you need to know about private student loans:
- Interest rates on private student loans vary, based on your credit history and the loan’s terms
- Most private student loans have variable interest rates, meaning the interest rate—and therefore your monthly payments—can increase or decrease at any time
- Some lenders allow you to postpone making payments or make reduced/interest-only payments while a student is in school. Often, however, payments start as soon as you receive the funds.
- Approval is based on creditworthiness
- Serving as a co-signer on the loan may increase the likelihood of approval for your student and result in a lower interest rate
- You may be able to consolidate private student loans into one lower-interest loan
Learn more about Navy Federal Student Loans.