Parent Student Loans
Sometimes your child’s federal financial aid package is not enough to cover all their college expenses. Many parents want to help cover those costs, but sometimes savings isn’t quite enough. Thankfully there are parent student loans available to help you in this situation.
Student Loan Options for Parents
There are two common student loan options for parents to consider, parent PLUS loans, which are issued by the federal government, and private parent student loans, which are issued by private lenders such as banks and credit unions. Federal parent PLUS loans come with specific benefits and protections not found with private parent loans, so let’s start by examining the basics of parent PLUS loans first.
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A parent PLUS loan is a federal student loan designed specifically for the parents of dependent undergraduate students. For the purposes of this loan, a parent is defined as the legal parent of a child. This includes legal adoptive parents and stepparents. Grandparents, legal guardians, and foster parents do not qualify.
There is no minimum credit score or debt-to-income ratio requirement to qualify for a parent PLUS loan, however, an adverse credit history may impact eligibility. An adverse credit history is defined by the U.S. Department of Education as:
- A current delinquency of 90 days or longer on more than $2,085 in cumulative debt
- More than $2,085 debt in collections or charge-offs in the past two years (based on the date of the credit report)
- Loan default, foreclosure, repossession, tax lien, wage garnishment, bankruptcy discharge, or federal student loan debt write-off in the past five years (based on the date of the credit report)
If you have adverse credit history and were denied, you may still be able to borrow a parent PLUS loan by submitting an appeal for exceptional circumstances to request reconsideration, or applying with an endorser (cosigner) without adverse credit history.
Another option available to parents is a private parent student loan. Unlike a parent PLUS loan, private parent student loans are offered by lenders such as banks and credit unions. These loans feature competitive fixed and variable interest rates—and often zero fees—that vary by lender, giving you the opportunity to shop around and compare. Private parent loan lenders do require a credit check. If you have a weak credit score or adverse credit history, you may need to apply with a cosigner.
A private parent student loan will allow you to borrow up to your child’s cost of attendance (which is determined by the school) minus all other financial aid received.
Private Student Loan vs Parent PLUS
|Private Student Loans||Direct PLUS Loans for Parents|
|Lender||Bank, credit union, financial institution, state agency, college or university||U.S. Department of Education|
|Interest Rate?||Competitive fixed or variable rates options||Fixed at 6.28% for loans first disbursed on or after July 1, 2021 through June 30, 2022|
|Credit Check?||Yes–credit score, debt-to-income ratio, work history||Yes–to see if you have adverse credit as defined by the U.S. Department of Education|
|Cosigner Required?||May be required unless borrower has strong credit history||Only required if borrower has adverse credit|
|Loan Fees||Typically 0% but may vary between lender and borrower qualifications||4.228% for loans disbursed on or after Oct. 1, 2021 through Sept. 30, 2022|
|Repayment Plans||Vary by lender||Federal student loan repayment plans. Parent PLUS Loans are not eligible for income-driven repayment plans*|
|Eligible to Consolidate or Refinance?||Private student loans can only be refinanced through a bank or credit union, but the refinanced loan can include federal loans. Some private refinance lenders will allow parent borrowers to transfer loan debt to child.||Eligible for both Direct Consolidation or private student loan refinance. Some private refinance lenders will allow parent borrowers to transfer loan debt to child.|
|Loan Limit||Up to the student’s cost of attendance minus other financial aid received||Up to the student’s cost of attendance minus other financial aid received|
*PLUS loans with parent borrowers not eligible to be repaid under an income-driven repayment plan. However, if the loan is included in a Direct Consolidation, the Direct Consolidation loan can be repaid under an income-contingent repayment plan.
Best Parent Student Loans
Which is the best student loan for a parent? Well it boils down to the preference of you, the parent borrower. Are you looking for competitive interest rate? Then a private student loan may be the better option. However, if you are looking for the extensive borrower benefits (like forgiveness options) offered under the federal student program, then a Direct PLUS loan may be the better option.
When it comes to borrowing money, most borrowers seek out loans with the most favorable terms, like loans with low interest rates and loans that don’t charge fees. These types of competitive terms are associated with private student loans. However, to qualify for the most favorable terms, you need to have strong credit and demonstrate at least two-years of work history. Private student loan lenders will also evaluate your debt-to-income ratio.
Do Parent Have to Cosign Student Loans
If you want to help your child pay for college, but you don’t want to be the primary borrower, you do have the option to cosign a private student loan for your child. Most undergraduate students require a cosigner to qualify for a private student loan. One thing you should know is cosigner release options exist, meaning after a certain number of on-time monthly payments are made, the lender may allow your child to assume the remaining obligation under their name alone.
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Parent Student Loan Forgiveness
If you are a parent student loan borrower, forgiveness options will be based on the type of loan you have.
There is no such thing as student loan forgiveness for a private student loan. However, your loan may have discharge options in the case of total and permanent disability or death. Although it’s an uncomfortable situation to think of, many parents do like to plan. If you are concerned about what happens if something happens to you or your child (who is benefiting from the loan), you should refer to the terms and conditions to see if these discharge benefits are an option. If you already have a loan that doesn’t include these benefits, you can look into a private student refinance. While not all private student loan refinance lenders offer disability or death discharge options, some do—it’s best to check the terms and conditions of each lender.
If you have a federal parent PLUS loan, there’s a way to make your loan eligible for Public Service Loan Forgiveness (PSLF), however it will require you to take a few steps. First, due to the eligibility requirements of the forgiveness program, you will need to consolidate your parent PLUS loan into a Direct Consolidation Loan. You would then have to repay that loan under an income-contingent repayment plan. After you satisfy both the work and payment requirements, you could be eligible for forgiveness after 120 eligible payments.
Now let’s quickly chat about bankruptcy. Although it’s not impossible, it’s very difficult to have a student loan (private or federal) discharged through bankruptcy. If you are seeking this type of discharge, it’s best to consult with a legal professional.
Transfer Parent Loans to Your Child With Refinancing
Once your child has graduated and is working, you may want to transfer the debt to them. Some private student loan refinance lenders will allow you to transfer your parent loan to your child. This means your child would need to apply and qualify for a private student loan refinance on their own merit, or with a creditworthy cosigner.
Parents Applying for Student Loans
If you are going to borrow a loan to help your child pay for college, you will need to complete a private student loan application and be approved.
How to Apply for a Private Student Loan
- Compare loans to choose a lender.
- Complete an application with your lender of choice.
- Once approved, your lender will ask your child’s school to certify the loan amount. (You can’t borrow more than your child’s cost of attendance minus other financial aid received).
- Once the amount has been certified, your lender will disburse the funds to your child’s school.
How to Apply for a Parent PLUS Loan
- Your child will first need to file the Free Application for Federal Student Aid (FAFSA®).
- Your child has determined where they want to attend school and it may be worth it to wait until your child has received their financial aid offer letter. That way you know how much you need to borrow to help cover college costs.
- Once you determined the amount you want to borrow, you will need to complete an additional application at StudentAid.gov for a Direct PLUS Loan.
- Approved borrowers will have the loan funds disbursed to your child’s school.