What Parents Need to Know About Student Loans
Sending a child off to college is a proud moment for any parent. But today’s college education comes with a hefty price tag. For many families, student loans are the only way to pay for higher education. And for parents, a lot has changed in the world of student loans since they were in school. If this is your first experience with student loans, or you simply need a refresher on how it works, here’s what parents need to know about student loans.
It All Starts with the FAFSA
Families hoping to receive any form of federal student aid must complete a FAFSA (Free Application for Federal Student Aid) every year. And it’s not just for student loans. The FAFSA is a must if you think your child may be eligible for grants or wants to pursue work-study opportunities.
The federal deadline to complete the FAFSA for the following academic year is usually June 30, but each school also has its own due dates. It’s best to check with the financial aid office so you don’t miss any criticaldeadlines.
Federal Student Loans Offer Options
You’ll find out what types of aid your child qualifies for after completing the FAFSA. If you find student loans are the best option, you’ll want to consider federal student loans first. These loans typically offer a grace period before payments are due, lower interest rates, better repayment terms and hardship options such as deferment and forbearance programs. Plus, they don’t require an established credit history or co-signer to obtain.
Be sure to talk with your college student about the responsibility these loans entail. Reinforce that they are not free money and that repayment begins soon after they graduate or stop going to school for any other reason. Encourage them to borrow and use student loans wisely.
Think Twice About Co-Signing
If your family doesn’t qualify for federal student aid, you may be considering private student loans. It’s important to note that these loans do not offer the same repayment, hardship or discharge options as federal student loans. These loans often require a parent (or someone else) to co-sign. This can cause financial strain on the co-signer if the student is ultimately unable to repay these loans. Be sure you understand what’s involved with being a co-signer before you make the decision.
Investigate Direct PLUS Loans
Direct PLUS Loans — often called Parent PLUS Loans — are available to eligible parents to pay for their children’s schooling at institutions participating in the Direct Loan Program. Provided by the U.S. Department of Education, the first step in obtaining a Parent PLUS loan is filling out the FAFSA. To qualify, you must: be the biological or adoptive parent of an undergraduate student at a participating school, not have an adverse credit history and meet the overall eligibility requirements for student aid.
Parent PLUS Loans are fixed-rate loans and offer many of the same advantages as other federal student loans. After completing the FAFSA, you may apply for a Parent PLUS Loan online.
Explore Less Expensive Options
If sending one or more children to a university will create financial hardship for the entire family, consider other alternatives. Community colleges are an affordable choice. Students can take transferable, pre-requisite courses much more affordably and save money while still living at home. Learn more about the financial benefits of community college.