What Should Parents Know When Applying for Student Loans?

As the college years draw nearer, many parents and guardians ask themselves, “How do parents pay for college?” College is a huge investment in your child’s future, and it’s the hope of many parents to help in some way. Realistically though, it’s not easy, or even feasible, for some parents to cover college costs. In addition to helping their child pay for college, parents and guardians are paying mortgages or rent, utilities, and saving for retirement. As students and parents use up other college tuition funding sources, they may find that there is still a gap between the merit and financial aid that they have and the cost of attending college. That’s when it’s time to consider applying for student loans.

Things to Know When Taking out a Student Loan

Firstly, student loans get a bad rap, but they’re how America pays for college – in addition to other college tuition funding sources. As you can see, families aren’t paying for college with a majority of student loans, and if that’s your option for “affording” a particular college, it may not be the smartest investment. Rather, student loans should be used as a last resort, after all other funding options have been exhausted, and there is a small gap between what the college costs and what funds you have available through scholarships, financial aid, and college savings.

How will the student loans be repaid?

After graduation, borrowers have a six- to nine-month grace period, during which student loans do not have to be paid back. This enables borrowers to find employment after college, get settled into a routine, establish a budget, and then being paying down on debt. Parent PLUS loans, however, do not have to a six-month grace period. This is because the federal government has lent the money to the parents, who have had to prove they are employed and have good credit before borrowing. It is assumed that they are able to begin repaying the loans, although there are exceptions for those going through undue financial circumstances.

Who will be responsible for repaying the student debt?

When it comes to private parent loans for college as well as federally-funded parent loans, it is assumed that parents will be repaying the loans. However, children can work out with their parents who will actually be making those payments. In some cases, students and parents work out that they will borrow in the parents names. However, after graduation, children would then pay their parents for the student loan payments each month. It’s up to each family to figure out what works for them before applying for student loans to pay for college.

Parent’s Guide to Student Loans

Just like students, parents have options when it comes to borrowing money to pay for college. The biggest choice is between private parent loans for college and Parent PLUS Loans, which are federal loans.

Private Parent Loans for College

Many of the private lenders that provide student loans to students also provide private parent loans for college. Fastweb can help you find private loan lenders through our Student Loans Center. You can also ask your college about their preferred lender list. This is a list of lenders that the college is currently working with or has worked with in the past. They already have an established relationship with the school or university.

Parent PLUS Loans

It is recommended that you always borrow federal loans first, and that includes Parent PLUS Loans. These loans have historically lower interest rates than private student lenders, although you should definitely shop around to see if and who may be offering better. Unless you request a deferment on a Parent PLUS Loan, you will be required to begin making payments once the loan is fully distributed. You must have a FAFSA (Free Application for Federal Student Aid) on file before you can apply. The maximum amount that you can borrow is the cost of attendance at your child’s college, less any aid they are receiving.

Other Considerations for Parent Loans for College

Applying for private parent loans for college is not a decision that should be entered into lightly. Parents and guardians and their children should have conversations before the college search begins in order to discuss who is paying for college and what type of college they can realistically afford. Student loans should also be used as a last resort. Exhaust these options before submitting a loan application:

1. Scholarship and Grants
2. Financial Aid
3. College Savings Plans
4. Part-Time Jobs and Paid Internships
5. Education Tax Benefits

Remember that your child can apply for scholarships in high school and throughout college. Don’t limit the scholarship search to the junior and senior year of high school, and always use Fastweb to help the scholarship search go more quickly and smoothly. There are a few other considerations to make before applying for private loans:

Bad Credit History

Many assume that there are not student loans for parents with bad credit; however, there are things that parents can do in order to qualify despite their credit history. First, parents can have a co-signer, or endorser, who agrees to repay the student loan if they are unable to at any point. This may be the student’s grandparent, or any other adult with good credit history who is willing to help in this way. If a parent has bad credit history due to specific circumstances that are no longer threatening their financial livelihood, they can make a case to the U.S. Department of Education or private lender for their present qualifications. You will have to provide documentation of the extenuating circumstances as well as proof that they will not impact your ability to repay the loans.

Your Child’s Student Loans

Finally, parents may not want to borrow any money to pay for college. Instead, they may insist that their child take out student loans on their own, which is their prerogative. However, parents will still very likely have to co-sign their student’s loans, meaning they are just as responsible for the student loan debt if their child stops making their monthly payments. Because their children don’t have an extensive credit history, they will not qualify for private student loans on their own. Again, parents and their children should have frank discussions about who is paying for college as well as who is responsible for student loan debt after graduation. By having these conversations sooner rather than later, families are better equipped to pay for college. These conversations may center around how to pay for college without loans. In that case, students will have to aggressively pursue the scholarship search or take on a part-time job that provides employer tuition assistance. They may also need to attend a lower-cost community college for two years before transferring to a four-year college or university. Families can also accept the reality that if their child wants to go to a particular college or university that will require them to take out student or parent loans for college, it's a sacrifice they must all be willing to make. Either parents will have to borrow in their name or act as a co-signer for their child.