Parent Loan Information

If you are a parent helping your child pay for school, the financial aid process can seem complex. Before you consider a parent loan, make sure your child has maximized free money such as scholarships and grants. Your child starts the process to obtain federal financial aid when you both complete the FAFSA.

Federal financial aid also includes government sponsored student loans in your child’s name, such as the Perkins or Stafford Loans. The Perkins and Stafford Loans have lower interest rates than the federal Parent PLUS Loan, so it’s probably smart to maximize that money first. Depending on your family’s financial situation the government may subsidize some of the loans by paying your child’s interest while he/she is in school at least half-time and during authorized periods of deferment. You will see this type of loan show up on your child’s financial aid award letter as a “Subsidized Stafford Loan.”

Once you have maximized free money and federal student loans, you may want to consider these two remaining parent loan options:

Federal Parent PLUS Loan

The Parent PLUS Loan is a government sponsored loan made in your name. You are responsible to make sure this loan gets paid back, and the loan will be reflected on your credit report. The Parent PLUS Loan does require you to pass a credit check to show that you do not have adverse (damaged) credit. Interest rates on the Parent PLUS Loan are fixed at 8.5% and there can be an origination fee of up to 4%. If your student’s school participates in the Direct Loan program, you can obtain your Parent PLUS Loan directly through the Department of Education with an interest rate of 7.9%.

Alternative Parent Loan

There used to be a handful of lenders offering an alternative parent loan, which is essentially a private loan made for college education in the parent’s name. The reality of an alternative parent loan is that you would likely be better off with a Parent PLUS Loan if you really want to put the loan in your name. The Parent PLUS Loan comes with federal deferment and forbearance protections and several repayment options that are unlikely to be featured with alternative parent loans.

For parents who want to put the loan in the student’s name, alternative student loans are available, especially if you are willing to co-sign the loan. Most students will need a credit-worthy co-signer in order to get approved, since they have little or no income and credit history. For more information on Alternative Student Loans or Alternative Loan Approval, check out the rest of our website.