Help keep your kid out of debt that could stay with them for decades.
Parent loans have become increasingly popular in recent years. It can help ease the debt burden your kid carries after they graduate college so they can start on the right foot financially. Here’s what you need to know about borrowing to pay for your child’s higher education.
What are parent loans?
Parent loans are a type of student loan that parents take out to pay for their children’s college education. But they’re an outliner in many ways. They typically come with shorter loan terms and higher rates than other student loans. You also might not get as many grace periods and deferment options as your child would if they applied for financing themselves.
To qualify, you’ll typically have to be a US citizen or permanent resident, be the parent or legal guardian of a student at an eligible school and meet the lender’s credit requirements.
Where can I get a parent loan?
You can get parent loans from the federal government by filling out a FAFSA application or from a private lender like a bank or online provider. It’s one of the rare cases when it actually might be worth going private over federal. You might not have as many repayment options, but private lenders can sometimes offer lower rates.
Here’s how some of the top parent student loan providers stack up.
Federal Parent PLUS
- Interest rates: Generally start around 7% fixed
- Fees: Origination fee around 4% to 5%
- Loan amounts: Up to the cost of your child’s education minus other financial aid
- Repayment terms: Up to 10 or 25 years
The federal government’s Parent PLUS loans are the most popular type of parent student loan. It’s actually a type of Direct PLUS loan, which is also available to graduate or professional students.
PLUS loans are a little different than other federal student loans. While you might not need a perfect credit score to qualify, you’ll need a record clean of defaults, bankruptcies and judgments, in addition to having your child meet other federal student aid eligibility requirements. You also have the option of submitting a document explaining the circumstances of any adverse marks on your credit history or applying with a cosigner.
Congress still sets the interest rate, but it’s generally higher than other federal rates. You’ll also have to pay the equivalent of an origination fee, which is a percentage of your loan amount usually around 4% or 5%.
As a parent borrower, you’re expected to start making repayments as soon as the funds are disbursed. If necessary, however, you can apply to defer your student loans until your child drops below half-time enrollment and even six months after. You have less pickings when it comes to repayment plans but you can still qualify for standard, graduated and extended repayment — more than you’ll be able to choose from with private lenders.
SoFi Parent Loan
- Interest rates: Generally start around 4% fixed or variable
- Fees: No origination fee
- Loan amounts: $5,000 minimum up to full cost of child’s education
- Repayment terms: 5 or 10 years
If you don’t want to deal with filling out a FAFSA application — who does? — you might want to consider borrowing from an online lender like SoFi. You can get approved in minutes and apply in a matter of hours. You can borrow from $5,000 up to the total amount of your child’s education expenses.
Through SoFi, choose between fixed rates that stay the same and variable rates, which change over time. Like with many other lenders, you can get a 0.25% discount on interest if you sign up for autopay. SoFi also doesn’t charge any application or origination fees.
When it comes to repayment, however, your options are limited. In fact, you only have one: You’ll have to start making full repayments as soon as SoFi funds your loan.
While SoFi doesn’t mention any hard credit requirements, you’ll typically need to have a good to excellent credit score and a low debt-to-income ratio (DTI) to qualify for the most competitive rates.
Sallie Mae Parent Loan
- Interest rates: Generally start around 5-6% fixed or variable
- Fees: No origination fee
- Loan amounts: $1,000 minimum up to full cost of your child’s education minus financial aid
- Repayment terms: Up to 10 years
Another online option with more of a household name is Sallie Mae. It started in 1973 as a government-backed student loans program, though now it’s fully private. While interest rates are higher than SoFi and Parent PLUS loans, you can borrow smaller amounts. You also don’t necessarily have to be the parent or guardian of the student — you could just be a very kind family friend or sibling.
Sallie Mae’s parent loan application takes about 15 minutes to get prequalified and you can complete the entire application on its site. Once your child’s school receives your funds, you have the option of choosing between two repayment plans:
- Interest repayment option. Only pay interest while your child is still in school for up to 48 months and then full repayments after for up to 10 years.
- Principal and interest repayment option. Start making full repayments as soon as Sallie Mae funds your loan.
Like SoFi, you can get a 0.25% discount on your interest rate when you sign up for autopay.
Citizens Bank Student Loan for Parents
- Interest rates: Generally start around 7% fixed
- Fees: No origination fee
- Loan amounts: Minimum $1,000, maximum depends on degree being pursued
- Repayment terms: 5 or 10 years
Unlike these other providers, Citizens Bank has limits to how much you can borrow to pay for your child’s education, based on their degree. You can typically apply for this loan online, though the application might be a bit more complicated. Citizens Bank asks you to provide extensive documentation, including a pay stub that’s no more than 30 days old or other proof of income and your monthly housing cost, as well as a student contact person. International borrowers and DACA applicants are also required to provide documentation regarding their current immigration status in the US.
Like Sallie Mae, you can also choose between two repayment options:
- Interest-only repayment. Only pay the accumulating interest while your child is still in school.
- Immediate repayment. Start making full repayments on interest and your loan’s principal to cut down on your loan term and save on interest.
One main perk is its interest rate discounts. You can get 0.25% knocked off your interest if you sign up for autopay and another 0.25% if you already have an account with Citizens Bank.
How do I pay back a parent loan?
How you repay your parent loan depends on your lender. With federal Parent PLUS loans, you have the option of deferring your loan until up to six months after your child drops below half-time enrollment. After that you’re eligible for one of the following repayment plans:
- Standard repayment plan. Take up to 10 years to pay off your parent loan with fixed monthly repayments.
- Graduated repayment plan. Take up to 10 years to pay off your parent loan with monthly repayments that start low and increase over time.
- Extended repayment plan. Take up to 25 years to pay of your parent loan with either fixed or graduated monthly repayments.
If you have private loans, you typically have less options. Some lenders offer you the choice of making interest-only repayments while your child is still in school at least half-time, or making full repayments right away. Loan terms generally range from five to 10 years.
Keep in mind that most student loan providers use third-party services to handle repayments. When it’s time to pay, you may be contacted by a loan servicer rather than the lender you initially got the loan from. If you have any questions about repayment, your servicer will likely be able to provide you with a more complete answer than your lender.
Refinancing parent loans
If you aren’t happy with your loan or transfer the debt into your child’s name, you can refinance it by applying for another loan with more favorable terms.
Refinancing in your name
Refinancing your student loan in your name is similar to the process for refinancing any other type of student debt. Before you apply, make sure that the lender allows you to refinance a parent loan and that you meet other eligibility requirements.
Refinancing in your name could extend your loan term to make repayments more affordable, lower your rate and more. The whole process typically takes about thirty days, though sometimes it can take as long as a couple months.
Refinancing in your child’s name
When your child is finally ready to carry their own debt, you might want to consider refinancing in your child’s name. For this to work, they’ll typically need to have a full-time job, good or excellent credit and a low debt-to-income ratio. You can get all of the benefits of refinancing the loan in your name — lower rates, longer terms, more repayment plan options — while also being legally absolved from paying it off.
Keep in mind that not all lenders will refinance parent loans in a child’s name however, so you won’t have as many options to compare. If your child has trouble qualifying, you can still cosign with them so at least they’re partly responsible for the debt.
Compare top providers for refinancing
Bottom line
Taking out a student loan in your child’s name can ease their debt load when it’s time to face the real world. And when the time is right, you can always transfer that debt into their name. With that said, it might not be the cheapest option. Other student loans tend to have lower interest rates, longer loan terms and more repayment plan options. To learn more about your kid’s options for paying for college, visit our student loans page.
