As a parent or guardian of a college-bound student, it’s important to ensure your child is financially prepared to cover the cost of higher education. And as Decision Day approaches, you might wonder whether your child can get a student loan on their own, or if they will need your financial support.
Read on to learn if parents or guardians can apply for student loans, which student loan options are available to parents, and what to be aware of when taking out a student loan in your name.
Can a Parent or Guardian Take Out a Student Loan for Their Child?
Parents or guardians can take out a student loan for their child, which can be beneficial for several reasons. One key advantage is that you may qualify for a substantially larger loan amount than your child could on their own. Creditworthiness is generally a major factor in the loan approval process, and it is not uncommon for students to have little or no credit history. In some cases, students may be unable to qualify as solo borrowers.
You may also qualify for a lower interest rate on a student loan than your child could for similar reasons. Securing a lower interest rate can save your child a considerable amount over the lifetime of the loan. Additionally, depending on your qualifications, you could receive more favorable loan terms in other ways, such as more flexible repayment options.
Applying for a parent student loan or a cosigned student loan are two options parents can consider, with one major difference. With a parent student loan, you (the parent), or the grandparent, guardian, or sponsor taking out the loan is solely responsible for repayment. With a cosigned student loan, on the other hand, you are accepting shared responsibility for repaying the loan if the primary borrower cannot.
A parent student loan does not require the student to qualify, nor does the student carry any financial obligation to repay the loan. Opting for a cosigned student loan, however,can help your child build their credit history, if the loan is paid back on time.
Types of Student Loans Available to Parents
Two primary types of student loans are available to parents or guardians: federal parent PLUS loans and private student loans.
Federal Parent PLUS Loans
Federal parent PLUS loans, also known as Direct PLUS loans, are provided by the federal government and are designed for biological or adoptive parents.
Parent PLUS loans cover the difference between the amount of federal student aid a student receives and the full cost of attendance, which is also the maximum amount of a parent PLUS loan. To apply for a parent PLUS loan, your child must fill out and submit the Free Application for Federal Student Aid (FAFSA®).
Like any financial decision, taking out a parent PLUS loan should be evaluated carefully. While this loan type may provide more funding than other financial aid programs, parents should be conscious of borrowing only what they need—and can repay—to avoid long-term financial repercussions.
Private Student Loans
Various lenders, such as banks, credit unions, and other organizations, provide private student loans directly to parents, or as a cosigner. The application process and eligibility requirements vary by lender and loan type, as do the loan terms. Some lenders, like Ascent, also offer undergraduate student loans designed specifically for parents or guardians and cosigned student loans.
Private Student Loans for Parents vs. Parent PLUS Loans
There are several key differences between private student loans and federal parent PLUS loans.
Advantages of parent PLUS loans include:
- Interest Rates: Whereas private loan rates will depend heavily on the market and the borrower’s qualifications, a parent PLUS loan offers a fixed interest rate set by the federal government.
- Repayment Plans: Parent PLUS loans have various repayment plans, including standard, graduated, and income-contingent options. These plans provide flexibility for those looking for a plan that most closely aligns with their financial situation.
- Deferment and Forbearance Options: Parent PLUS loans typically have many deferment and forbearance options, which can be a lifeline should you experience economic hardship.
- Loan Forgiveness Programs: Parent PLUS loans may be eligible for the Public Service Loan Forgiveness (PSLF) program, which is highly advantageous for parents with qualifying public service jobs.
Key features of private student loans include:
- Loan Terms: Private student loans offer more variety in terms of interest rates, and repayment plans, meaning that parents choose the best terms for their financial situation.
- Cosigner Release Options: Some private student loans offer the option of releasing the parent cosigner from loan obligations after the student meets certain loan repayment criteria.
- Approval Process Timeline: Private loans typically have faster application and approval processes than federal loans.
- Lending Limits: Private loans may allow parents to borrow significantly higher amounts, in some cases, the full cost of attendance. It’s important to note that the amount a particular parent borrower qualifies for will vary based on creditworthiness and lender.
- Additional benefits: Private student loan providers often offer additional benefits including cash back rewards, automatic payment discounts, or access to coaching resources like AscentUP.
Pros and Cons of Taking the Loan Out in Your Name
While there are many advantages to taking out a student loan for your child in your name, there are also some disadvantages. Let’s explore the pros and cons.
Benefits of Parents Taking out a Student Loan
- Access to More Funding: Parents typically have more established credit histories than their children, so they can often qualify for higher loan amounts.
- Potentially Lower Interest Rates: While the federal government sets parent PLUS loans’ fixed interest rates, parents can often qualify for lower interest rates than their children on private loans.
- Alleviating Immediate Debt for the Student: A loan in your name removes some of the student’s immediate financial burden, allowing them to focus on their studies.
Things to be Mindful of When Taking out a Student Loan
- Responsibility Falls on You: You are ultimately responsible for repaying the loan, regardless if your student completes their program
- Impact on Your Credit: Taking out a loan can impact your credit, especially if it is for a large amount. Late or missed payments can hurt your credit score, and the loan will impact your debt-to-income ratio (DTI), which can impact your ability to secure other forms of credit.
- Opportunity for Open Discussion around Finances with Your Child: Mixing family and finances can be tricky, and the financial obligation of the loan should be met with openness and honesty. Open communication about expectations, repayment plans, and financial responsibilities can help prevent misunderstandings.
Overview of the Student Loan Application Process for Parents
Every private student loan has a different application process, so you must contact each lender to discuss the process for their graduate or undergraduate loans. However, the application process for federal parent PLUS loans is similar.
For parent PLUS loans, the steps look like this:
- Complete the FAFSA. This determines eligibility for most federal student aid programs.
- Log in to StudentAid.gov. After submitting the FAFSA, use your FSA ID to log in to the Federal Student Aid website.
- Select “Apply for a PLUS Loan.” Use the “Apply for Aid” tab and choose “Apply for a Parent PLUS Loan” for the relevant award year.
- Complete the parent PLUS loan application. Provide the required personal and financial information on the application form, such as income, employment, and contact information.
- You must undergo a credit check. Unlike other federal student loans, the Department of Education assesses your credit history to determine eligibility.
- Sign the Master Promissory Note (MPN). If approved, you must sign the Master Promissory Note on the studentaid.gov website. This legal document outlines the terms and conditions of the loan and documents your promise to repay it.
- Receive a loan decision. The Department of Education will notify you whether you’ve been approved for the loan, along with the loan amount and terms.
- Accept or decline the loan. You can accept the full loan amount, choose a lower amount based on your child’s specific needs, or decline the loan if you no longer need it or have found a better option.
Tips on How to Determine Which Type of Student Loan Is Right for Parents
Now that we’ve established that parents can take out student loans for their children, the next step is figuring out which loan type best suits their needs. Here are some tips for determining which loan is best for your financial future and your child’s education.
- Evaluate Your Financial Situation. Assess your income, savings, existing debts, and overall financial capacity to determine what loan repayments you can afford.
- Research Available Options. Understand federal and private options regarding interest rates, repayment plans, borrower protections, and other terms to determine which best aligns with your needs.
- Compare Interest Rates. Consider whether fixed or variable rates are more advantageous to you and the specific rates offered on specific loans. For example, if you value the predictability of a fixed rate with ample deferment and forbearance options, a parent PLUS loan might be your best bet.
- Compare Loan Limits to Need. Different loans have different limits, which may or may not meet your child’s needs.
- Understand Repayment Options. Different loans offer different repayment options, some of which may be more advantageous for your situation.
- Assess Your Creditworthiness. Evaluate your credit history and credit score to understand how they might impact your loan approval, interest rates, and available loan terms.
- Consider Cosigning. Evaluate whether it would be better to be a cosigner yourself or find another cosigner, especially one with a strong credit history.
- Review Available Borrower Protections. Consider whether deferment, forbearance, loan forgiveness programs, and cosigner releases are available.
- Seek Professional Advice. Financial aid advisors and student loan experts can provide personalized guidance based on your circ*mstances and needs. Contact our support team today!
Learn More with Ascent
Ascent is committed to helping students achieve their goals in college and beyond. That’s why we offer a library of financial wellness resources and a variety of loan options to meet your financial needs.
Learn more about our college loan options for parents.
FAQ
Do parents need to cosign student loans for their children?
Parents often do not need to cosign student loans for their children if the student borrower can qualify independently. However, cosigning a loan for your child may increase the total loan amount available, reduce interest rates, and secure more favorable terms.
Can my child get a student loan on their own?
Whether your child can get a student loan independently depends on several factors, including their financial need, creditworthiness, credit score, and the school’s total attendance costs. The best way to determine this is to have them fill out the FAFSA, apply for federal student aid, and then apply for private student loans to address any remaining funding gaps. Application criteria will also vary by lender.
How do you get private student loans for parents with bad credit?
Although getting private student loans for parents with bad credit can be more difficult, there are options. Some lenders may have more flexible credit requirements or allow collateral to secure the loan. You can also investigate lenders who specialize in helping borrowers with bad credit.
