By Kalli Kauffman (BA 27)
So you’re stuck in a rut. As you look at tuition rates, you’re daunted by what the future holds. How will you graduate in four years? How will you afford college? We understand your concerns.
But what if we told you that you’re not alone? At Grace, we offer a range of financial aid options to reach your next step. Read on for assistance in choosing the right loan.
What are the pros and cons of taking out a parent loan to finance a student’s education?
A parent loan can help fill the gap in financial aid available to dependent undergraduate students, and a federal parent PLUS loan can be the easiest to qualify for. Both private and federal loans can be borrowed up to the cost of attendance at a student’s school, which can help cover more than just tuition, housing, and food (direct costs) and can be deferred until a student graduates.
What are the key differences between federal and private parent loans?
To comprehend parent plus loans, you must first understand your options. Federal loans are the easiest to qualify for since you don’t have to have stellar credit; just not poor credit. Federal loans have a set interest rate, whereas private loans’ interest rates are based on the cosigner’s credit score. Anyone can cosign a private loan; it doesn’t have to be a parent. Most private lenders don’t offer parent loans per se but usually do require a cosigner.
Federal loans can be forgiven if a student passes away or becomes permanently disabled. Some lenders have those provisions, and some don’t, so choose wisely. Most private loans don’t have origination fees, while federal loans have a 1.057% origination fee. Federal loans are paid over 10–25 years, but most private loans have 10-year payoff schedules.
A private student loan is a good choice for parents with above-average credit since the rate could be better than the federal PLUS loan. And most lenders have cosigner release clauses that release a parent from the loan within a set amount of time if the student makes their payments on time. Most have either 24-month or 36-month cosigner release clauses.
While a federal parent PLUS loan is always in the parent’s name, it doesn’t mean that the student can’t help make the loan payments. The loan will remain in the parent’s name and on their credit report.
What are the most important factors to consider when choosing a parent loan?
You’ll find the federal parent PLUS Loan has a fixed rate and a 4.24% origination fee. Most private student loans don’t have an origination fee. However, they can vary in interest rates and other loan options based on the lender and the FICO score of the cosigner. If the parent or cosigner has decent credit, consider looking at the private loan options and comparing them to the PLUS loan.
That means a parent can be off the student loan in 2 to 3 years of on-time payments. The other difference is that a federal parent loan can be forgiven if the parent passes away. Some private loans offer provisions if the cosigner passes away, but most don’t.
What are the factors to consider when deciding which private student loan best suits them?
When considering private loans, look at the time available for repayment. Check if the interest rate is variable or fixed and if there is a cosigner release clause or other options. Compare rates and have the cosigner with the best credit apply to the student.
What are the pros and cons of a private student loan?
A private student loan can help fill the gap between institutional, state, and federal aid. It can be borrowed up to the cost of attendance and not only for direct costs at the school (tuition, food, housing, and fees). With good credit, a cosigner can help a student land a fixed interest rate.
What advice would you give to someone considering a private student loan?
Carefully consider how much you’re borrowing above and beyond federal loans. Make sure to use all federal loan eligibility first. Those usually have lower interest rates, have better benefits, and don’t require a cosigner. Use a comparison tool to look at several private student loans before choosing.
So look to the future – and don’t forget to read the fine print.
If you have any more questions, like “What are parent PLUS loans?”, contact the Financial Aid Office for more information on Grace College’s financial aid plans!
