You’re committed to helping your child pay for their higher education, but you aren’t sure what to do, or even where to look. Fortunately for you, you do have choices, especially if you’re in a strong financial position. Here are some of the best student loan options for parents.
The Issue
Parents seeking to help their children pay for school have federal and private student loan options from which to choose. But depending on your circumstances, some are better than others. The key is to get going on all this early.
What are Federal Student Loans?
These are loans made by the government, with terms and conditions set by law. Federal student aid is the largest provider of college financial aid in the nation.
What are Private Student Loans?
Private student loans are non-governmental loans that are made by a bank, credit union or online lender.
What About Parent PLUS Loans?
You can apply for one of these through the Free Application for Federal Student Aid. The amount can be as much as the total tuition cost. One caveat: Once the loan is fully distributed, it’s then due, although you can seek a deferment while your child is still enrolled. You also may not be eligible for forgiveness programs that come with conventional student loans.
For the 2020-2021 school year, these loans carry a fixed 5.30% rate – the highest for federal loans. If you aren’t eligible for a parent PLUS loan or if you can get a better rate somewhere else, you can try private lenders for parent loans for college students.
What About Private Loans?
If you have the credit score to pull it off – lenders generally want to see at least 670 – you could get a private student loan rate that tops federal loan rates. Check out Sallie Mae reviews for insights on that lender. Make sure you do your homework because each lender has its own requirements.
What About Co-Signing?
If you’re considering co-signing for a private loan for your child, usually to supplement federal student loans, you need to know the implications, namely that if your child is unable to repay the loan, you’re on the hook for it. You know your child best. Is he or she relatively responsible? Do you know your child’s financial goals? There are instances where you can be released as a co-signer, usually when several on-time payments have consistently been made. You should factor this in when making your decision.
Can I Pinch Off My Retirement?
You can, although it’s not recommended because, hey, you need your retirement stash. But it happens. A survey from last year found that parental income and savings covered 44% of students’ college expenses. What’s more, 82% of parents surveyed expressed a willingness to stretch themselves financially to make certain their child’s college is paid for. The support could very well come from retirement plans.
Can I Use My 401(k)?
The answer is yes, although it should be a last resort. If you’re under the age of 59 and a half, you won’t get hit with early withdrawal fees and penalties if the money is going to help pay for school. There may be other considerations, so contact a tax expert for more info.
Now that you know the best student loan options for parents, you can move forward and help your child with confidence. Just remember, Juno is a good source for student loans with the best rates, since the service partners with private lenders to provide discounted student loans.
