Why Do Parents Need Loans?
The cost of tuition varies greatly depending on the school and resident status. Certain institutions, such as a community college, may save you money, but if your student is determined to head to a prestigious, out-of-state university, the cost can be immense.
While parents are often expected to help students pay for higher education — hence why most financial aid documents require so much information on parental finances — they also have their own financial obligations, including:
- Car payments.
- Retirement accounts.
- Health care premiums.
Loan agencies know parents have numerous obligations and often need help affording higher education for their children. As a result, they’ve created plenty of options parents can choose from to help pay for school.
6 Parent Loans to Consider
By the time you become a parent, you’ve worked with financial institutions at least once. You probably have a bank account, a mortgage, a credit card, and other types of loans. You’re at least somewhat familiar with what to look for in a loan product. Even with this knowledge, it can be tough to decipher all the information out there. We’ve gone through the data to help you spot a few organizations that should top your list of loan contenders.
- The U.S. Department of Education: Just as you’re encouraging your child to look over federal loans first, you should do the same. This loan comes with a low interest rate of 7.08%, and it’s fixed for the life of the loan.
You can request payment deferment while your child is in school, so you don’t have to pay right away. If your credit history is poor, you can still get this loan with the help of a cosigner. There are fees involved with this product, including a processing fee of about 5%.
However, unlike the loan products your child gets, a PLUS loan doesn’t come with forgiveness options. You’ll have to pay back the balance no matter what.
You also can’t transfer the loan to your child. If you default, as experts point out, the government can garnish your wages, take your Social Security balance, and more.
- Wells Fargo: This company offers loans for parents with fixed interest rates starting at 6.74% APR. You can borrow up to $25,000 per school year and have the option to pay back the balance immediately or make interest-only payments while your child is in school.
You’ll need good credit, and this loan is only available to parents in the United States. If your child dies or is permanently disabled, the loan balance is forgiven. That’s something even federal loans don’t offer.
Wells Fargo has decent reviews on Trustpilot, although commenters often report that you’ll need to go into a bank location to fix most problems rather than calling customer service.
- College Ave: This company offers loans to parents with a good credit history, and allows you to take $2,500 of the loan into your own bank account to give to your child on a schedule that seems right for you.
Fixed rates vary from 5.96% to 11.91%, which makes this a competitive option. You can pay on the interest while your child is in school, or you can skip all payments until your child graduates.
This company has a remarkably good score on Trustpilot. Most reviewers say the application process is smooth and easy.
- Citizens Bank: This company offers loans for parents at fixed rates of 5.48% to 8.52%. That upper limit is among the lowest we’ve seen in the private loan market. You can pay back the balance in 5-year or 10-year plans, and you can take out loans as small as $1,000 or as large as $350,000.
With one application, you’re approved for multiple years. When the next year starts, just request new funds.
This company is rarely reviewed online, so it’s difficult to gauge what prior customers thought of their loan experience.
- Sallie Mae: Parents can take out loans with fixed rates of 5.49% to 12.87%. There’s no fee to begin the loan, and you won’t get charged more if you pay off the balance early.
You’ll need good credit to qualify, and will likely be denied if your credit is not up to par. The student you’re borrowing for can’t be your cosigner.
You have plenty of repayment options available, including versions in which you pay off the interest while your child is in school.
- SoFi: This organization offers loans to parents with interest rates as low as 5.05%. If you have a poor credit history, you’ll pay more in interest than someone with a completely clear record.
There are no origination, late, or prepayment fees involved. And you have plenty of payment options, including versions in which you defer all payments while your child is in school.
This company has 4 of 5 stars on Trustpilot, with reviewers citing ease of the process and exceptional customer service.
What Should You Try First?
Student loan companies work hard to make enrollment easy, and plenty of the loans we’ve discussed are good for those who can’t make ends meet without a little help. But that doesn’t mean loans are right for you.
As experts point out, taking out thousands of dollars in loans now could keep you from setting aside the funds you’ll need to cover food, housing, and healthcare in the future.
In most cases, law experts say, you can’t discharge student loans in bankruptcy. Even if you feel as though you’re over your head with financial responsibilities, you’ll still have to pay back the loans.
Before you sign documents and commit to the loan, ask yourself:
- Has my child exhausted all opportunities? Federal loans for students come with benefits that parent loans do not. Your child can defer interest, for example, and some can discharge unpaid balances.
- Can we cut our expenses? Do you need an expensive vacation this year? Can you keep your old car for a few more years before taking on an auto loan? Small budget changes can lead to big dividends. Scour the monthly budget and look for places to eliminate costs.
- How can we help with living expenses? If your child needs added help to keep an off campus apartment, does moving home make sense? Your child may lose some independence, but the savings could be immense.
- Can I take on a side hustle? Do you have hidden skills or hobbies you can profit from? Picking up a side hustle can help you send extra funds to your child for tuition compensation.
- Can I dip into inheritance accounts? If you’re holding back money for your child’s rainy day, it’s arrived. Look at ways to make that fund cover the costs you face now, so you’ll both have a smaller debt load to consider.
If you do decide that a loan is best for your family, remember to take out the smallest amount possible. Never accept more than you need, or you’ll have a bigger bill to show for it.
And watch the terms of the loan carefully, so your monthly payment isn’t more than you can afford.