Private Parent Loans: A New Option to Pay for College
Several lenders now offer private college loans for parents.
Unlike private student loans, where the student is the borrower and the parent is often a cosigner, parents are the only borrowers on a private parent loan.
A private parent loan may be a cheaper option than a Parent PLUS Loan. For the 2017-2018 school year (July 1, 2017 – June 30, 2018), the interest rate on new Parent PLUS Loans will be 7% (fixed) with a loan fee at 4.264%. For the 2018-2019 school year (July 1, 2018 – June 30, 2019), the interest rate on new Parent PLUS Loans will be 7.6% (fixed) with a loan fee at 4.264%*.
*Loan fee for loans through Sept. 30, 2018. The loan fee may change on Oct. 1, 2018.
Some parents may qualify for private parent loans with lower fixed rates and fees than the Parent PLUS Loan.
When you compare federal and private college loans, it’s important to consider the differences in benefits, not just the costs of the loan.
Federal student loans generally offer better benefits than private student loans. But Parent PLUS Loans aren’t eligible for all of these same benefits.
This chart highlights some key differences:
|Parent PLUS Loans||Private Parent Loans|
|Eligible for Income-Based Repayment Plan||No||No|
|Eligible for Pay-As-You-Earn Repayment Plan||No||No|
|Eligible for Public Service Loan Forgiveness||No||No|
|Deferment and Forbearance Options||Up to 3 years||Typically up to 1 year|
|Eligible for Death and Disability Discharge||If parent borrower or student dies, or parent becomes totally and permanently disabled||Depends on lender - some offer a similar benefit|
|Credit Requirements||Borrower must not have an Adverse Credit History; Credit scores are not considered||Credit scores, income, and other factors may be considered|
Usually not required; If parent borrower has an Adverse Credit History, an endorser will be required
|Usually not required; Cosigner release option may be available|
When to Use a Private Parent Loan
How do you know if it’s the right time to consider a private parent loan? First, you should ask yourself these questions:
- Has the student exhausted eligibility for lower-cost federal student loans, such as Direct Subsidized and Unsubsidized Loans?
- Are the parents willing to borrow money to help pay for college costs?
If the answer to both questions is yes, then you should compare the tradeoffs between the costs and benefits of the private parent loan and Parent PLUS Loan and choose the best option.
A private parent loan might also be a good option for parents with older Parent PLUS Loans at higher interest rates. Some lenders may refinance these loans into a lower rate private loan.