The cost of acquiring education is expensive. Hence, students and parents must seek means of getting funding. One of the popular means of getting funds for college is using parent loans. In this article, we will discuss extensively the benefits and drawbacks associated with these loans.
What Are Parent Loans?
They are monies students’ guardians or parents borrow to pay for academic fees. The guardians or parents take the loan in their name and take complete responsibility for the repayment. Like student loans, this type covers college costs like tuition, accommodation, or supplies. You can visit this website to learn more about student loans.
Types of Parent Loans
There are 2 types of parent loans. They are parent PLUS and private loans. Each has a unique application process and requirements. Let us look closely at each option and explore its pros and cons.
Parent PLUS Loans
These are federal parent-specific loans. The interest rate is fixed, and the standard repayment period is 10 years. Here, parents can request tuition fees excluding any financial aid their children are receiving. The funds go to the college directly.
It is important to note that before you apply to collect this kind of loan, you must be the adopted or biological parent of the undergraduate student. Therefore, legal guardians and grandparents are ineligible to request the loan. Although parent PLUS shares similar features with other student loans, it has important differences.
First, it does not have an automatic grace period. As a result, payment is due immediately after the school receives the money. Next, beneficiaries do not qualify for IBR (income-based repayment program). Last, parents who request this loan will undergo a credit review.
There is currently no credit score to access the loan. But a review of your credit checks for any adverse history like foreclosures, bankruptcy, and repossession. You can check out https://www.usa.gov/credit-reports to read more about credit reviews.
Private Parent Loans
They are issued by non-governmental entities like credit unions or banks to qualifying guardians or parents of undergraduate college students. The aim is to help them pay for college-related expenses. Each private lender has its own terms, interest rates, application procedures, and eligibility criteria. Although the interest rates may be fixed, they are determined using factors like income review and credit history.
Parents are interested in the future of their children and want them to do well in school. They also want to assist them to pay all or a portion of their college fees. And by reducing the post-graduation debts, their children will focus better on academics and kick start their careers. They will also be able to prepare for the next huge investment – buying a home or a car.
Since the loan will be taken in the name of the parent, he or she is responsible for the repayment. However, their children can contribute towards the loan repayment. This way, they will experience how bills are paid without being a part of the risks.
Furthermore, there is a tax-deductible interest on the loan. Therefore, borrowers can deduct all or a portion of the interest paid on the loan.
The financial responsibility that a parent assumes when taking the loan is part of its pitfalls. You need to make payments on time to enable you to have a good credit score. Hence, late or missed payments will harm your credit.
What You Should Know About Cosigning
Taking parent loans for college gives the parent a total responsibility for repayment. However, cosigning assigns an equal responsibility to the borrower and cosigner. Whether the payment history and credit reports were good or bad, they will affect the two people involved. Since many undergraduates do not have a credit history that will qualify them for a private loan; they will need cosigners.
Before taking a loan for your child’s education, you need to explore several options. You can consult the school’s financial aid staff and loan providers to help you make smart choices that will favor you and the entire household. Taking a loan is just one tool for paying college fees. Therefore, before considering taking it, encourage your children to seek aid that does not require repayments such as scholarships and grants.
The post All You Need to Know About Parent Loans for College first appeared on Mind My Business.