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XiXinXing/Shutterstock May 12, 2022 Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re looking to help pay for your child’s college education, it’s usually best to explore financial aid options like scholarships and grants first. However, if there’s anything left to cover, you may choose between two types of parent loans for college: federal Direct PLUS Loans and private student loans. Where federal Direct PLUS Loans (also known as parent PLUS loans) come with fixed interest rates and federal protections, can have variable rates and fewer fees. The right choice for you depends on your priorities and your family’s financial situation. Parent PLUS vs private student loan rates
Parent PLUS loans Private parent student loans Type of interest rate Fixed Fixed or variable Current rates 6.28% for 2021-22, 7.54% for 2022-23 1% to 14% Origination fee 4.228% Varies by lender Credit check required Yes Yes Repayment terms 10 to 25 years 5 to 25 years Borrowing limits Up to the cost of attendance, minus financial aid Often up to the cost of attendance, minus financial aid FAFSA required Yes No What is a parent PLUS loan
Parent PLUS loans are government loans parents can take out to pay for all or some of their child’s college education. About 3.6 million parents have this type of loan at last count, according to the most recent data from the . You can borrow up to your child’s cost to attend school, minus any other financial aid they receive. With that being said, it’s important to note that loan costs are a bit higher than those of federal loans designed for students. Not only do parents pay an upfront loan fee of 4.228 percent, which is deducted from the loan disbursement, but they are also charged an of 6.28 percent for the 2021-22 school year and 7.54 percent for the 2022-23. How do federal parent PLUS loans work
Interest begins accruing on federal parent PLUS loans as soon as the loan is disbursed, although you can defer payments while your child attends school. Unlike private options, parent PLUS loans are eligible for some federal repayment plans and forgiveness programs. To apply for a parent PLUS loan, follow these steps: Check your eligibility. To qualify, you’ll generally need to be the parent of a dependent undergraduate student who is enrolled at least half time in an eligible school. Stepparents qualify in some cases, but grandparents and legal guardians do not. You’ll also need to meet for federal student aid and have a strong credit history. Fill out the FAFSA. Before you apply for the loan, your child should first fill out and submit the (FAFSA). Apply for the loan. Head to the to apply. If you qualify, the loan will be included in your child’s financial aid package. Receive the funds. The Department of Education will send the funds directly to your child’s school, which applies the money toward tuition, fees, room, board and other school charges. Any funds left over will go to you (or the student, if you allow). Consider your repayment options. Parent PLUS borrowers are eligible for four types of : a standard repayment plan, a graduated repayment plan, an extended repayment plan and an income-contingent repayment plan (if parent PLUS loans are consolidated into a Direct Consolidation Loan). Parents will need to reapply for the parent PLUS loan each academic year. Will parent PLUS loans be included in student loan forgiveness
President Biden has discussed offering $10,000 in to qualifying borrowers. There is still no guarantee that any form of student loan forgiveness would happen, though if it did, it’s likely that parent PLUS loans would be included, since they are federally owned. In the meantime, parents with these loans can apply for existing programs that forgive student debt. One of the most popular of these programs is , which will eventually forgive student loan debt for borrowers who work for a government or nonprofit employer. In order to take advantage of the program, parents must consolidate their parent PLUS loan through a Direct Consolidation Loan and enroll in the . How do private parent student loans work
originate from private financial institutions such as banks, credit unions and online lenders. Parents may take out the loan as the primary borrower or co-sign a loan with their child. Here’s how to get a private college loan for parents: Shop around. Research a few and compare loan limits, fees, interest rates and repayment plans. If you’re unsure whether you qualify for a loan, see if the lender offers prequalification. Apply for the loan. You may need to supply your identification information, employment history, proof of income and other details. Receive the funds. The lender will notify you if you qualify for the loan and explain how to accept the funds. Typically, the lender first sends the funds to your child’s school and then sends leftover money to the borrower (you). Choose a repayment plan. Make sure the monthly payment is affordable. You should also understand whether the interest rate will change and what you’ll have to pay in fees. Depending on the lender, you may be able to defer payments while your child is in school. As with federal college loans for parents, you’ll likely need to reapply each year. How to choose a parent student loan
The decision between federal PLUS loans and private parent loans is a personal one. Here are some questions to ask yourself when deciding between parent loans for college: Which type of loan do I qualify for? If you have a strong credit score and a long credit history, you may be able to get a much lower interest rate with a private parent loan. To find out about the interest rate you might qualify for as a private parent loan applicant or co-signer, look for online lenders that let you “get prequalified” or “check your rate” without a commitment. Would I benefit from extended repayment timelines or income-driven repayment plans? If you want access to longer repayment periods, then parent PLUS loans could be your best option. After all, you could be eligible to repay parent PLUS loans with a graduated or extended repayment plan, or even an income-contingent repayment plan provided you consolidate your parent PLUS loans with a Direct Consolidation Loan first. Does a fixed or variable interest rate make more sense for my budget? Where federal PLUS loans come with a fixed interest rate, private student loans can have either fixed or variable rates. In some cases, a lower variable rate could be more advantageous in the short term. Are there ways to avoid fees or earn discounts? Where parent PLUS loans charge an upfront loan fee of 4.228 percent just to get started, private student loans often come with no origination fee at all. Meanwhile, some lenders offer autopay discounts you can qualify for. What are the co-signer options? Although your child may agree to repay any debt, parent PLUS loans and private student loans in your name are ultimately your responsibility. If you feel that the debt should be a shared responsibility, co-signing a private loan that your child takes out makes more sense, because you both legally share the debt. Check whether the loan includes a co-signer release, which would allow your child to take full responsibility for their loan once they’ve made enough payments or built up enough credit. The bottom line
If you’re a parent who wants to provide financial help for college, either a parent PLUS loan or a private loan could work for your needs. Your best bet is comparing both options based on how much they would cost you over the long term. Our advice is to check out and fees from private lenders and compare them to the fixed, expected costs of parent PLUS loans. If you can save money and secure a comparable monthly payment and repayment timeline with private student loans, doing so could lead to considerable savings. Learn more
SHARE: Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Related Articles