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.
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.
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.
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.
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.
How will the student loans be repaid?
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.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:- Scholarship and Grants
- Financial Aid
- College Savings Plans
- Part-Time Jobs and Paid Internships
- Education Tax Benefits