What Are Parent College Loans?
Parents may help their children pay for school tuition via a parent college loan. Parent college loans are always made in the parent’s name of the student attending college, as they are financially responsible for paying off the loan. The most common type of parent college loan, a Plus loan, allows parents to borrow money from the federal government at a fixed interest rate of 7.9%. The loan can cover the entire cost of tuition or may supplement preexisting financial aid.
How Can I Qualify for a Parent College Loan?
In order to qualify for a parent student loan, the parent must first complete the FAFSA with their child. The resulting financial aid award letter establishes the amount of money that can be borrowed toward the student’s college education. Parents should sit down with their student and decide which colleges are within their budget as directed by their financial aid. Once these parameters have been evaluated, there are several qualifications that the parent and their child must fulfill, including:
- The parent will be required to have their credit checked.
- The student must be under the age of 24.
- The student must be an undergraduate.
- The student may not be married.
- The student must be financially dependent on their parents.
Repaying a Parent College Loan
Although interest begins to collect at the outset of the loan, parents generally don’t have to start repaying until after their child has graduated. The repayment term can be as long as ten years. Parents should only turn to parent college loans if federal student loan resources have already been utilized, as federal loans have cheaper rates. Parents should strongly consider whether it will take them more than ten years to pay off their debt or whether their retirement fund will be depleted as a result. If parents are unable to take on the economic burden of a student loan, the student may always consider a personal student loan instead.
Parents may defer repayment while their child is still in school and within a six-month grace period of graduating or dropping below a full-time status. They may also defer payment if they themselves are enrolled in a college or university. In cases such as economic hardship, forbearances may be given for up to three years, with renewal each year. However, debt will continue to grow even amidst deferral.
Types of Parent College Loans
- Parent PLUS Loans: Parents and parental guardians without adverse credit may apply for a PLUS loan with a fixed interest rate of 7.9%, a 3% origination fee, and a 1% federal default fee with no collateral. They may borrow up to the cost of tuition per year, not including added financial aid. These are non-need based loans and the student must be enrolled at a half-time status or greater.
- Wells Fargo Student Loan for Parents: Wells Fargo also has a loan program for parents looking to fund their child’s college experience, but they may also be the student’s grandparent, friend, or step-parent. The loan covers up to $25,000 per school year at either a variable or fixed interest rate.