Editor's choice: Splash Financial Student Loan Refinancing
- Good for high debt loads
- Referral bonuses
- Parent loan refi option available
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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.
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. Federal parent loans are only available to biological or adoptive parents.
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.
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.
You can apply for a Parent PLUS loan by filling out the Free Application for Federal Student Aid (FAFSA). These loans are eligible for Public Student Loan Forgiveness (PSLF), but only if you consolidate them with a Direct Consolidation Loan and sign up for Income Contingent Repaymetns.
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.
Parent PLUS loans are only available to the biological or adoptive of the student — grandparents and legal guardians aren’t eligible.
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.
College Ave is an online lender that offers loans to parents to cover the full cost of their child’s education. It offers a choice between paying interest while the student is in school, making reduced interest and principal repayments, or full interest and principal repayments right away. Loan terms range from 5 to 15 years — shorter than most student loans in your child’s name.
You can prequalify online and keep your offer for between 60 and 90 days. It takes about three minutes to complete your application and around 40 to 55 days for the funds to be disbursed.
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 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 only paying interest while your child is in school or making full repaymetns right away.
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 interest-only and full repayments.
One main perk is its interest rate discounts. In addition to the standard 0.25% autopay discount, you can get and another 0.25% discount if you already have an account with Citizens Bank.
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:
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.
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 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.
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.
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.
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