What are my private student loan options?

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.

Loan Costs

A private parent loan may be a cheaper option than a Parent PLUS Loan. For the 2016-2017 school year (July 1, 2016 – June 30, 2017), the interest rate on new Parent PLUS Loans will be 6.31% (fixed) with a loan fee of just over 4%.

Some parents may qualify for private parent loans with lower fixed rates and fees than the Parent PLUS Loan.

Loan Benefits

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
Cosigners

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:

  1. Has the student exhausted eligibility for lower-cost federal student loans, such as Direct Subsidized and Unsubsidized Loans?
  2. 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.

What are my private student loan options?