Borrowing: The Parental Role
Working in Partnership
Like other parts of the college planning process, the borrowing process should be a partnership between parent and child. By working together, families can make sure they get the best financing possible.
Parent as Partner
Assisting with the bills isn't the only way parents can help their children afford college. Parents can also help by:
- Coaching their children on getting organized—for example, encouraging them to contact colleges and set up a calendar of deadlines
- Reading up on College Loan Options
- Discussing family finances and responsible borrowing with their children
- Doing their taxes early: it's much easier for dependent children to complete the Free Application for Federal Student Aid (FAFSA)—and, when required, CSS/Financial Aid PROFILE®—if their parents have completed their tax returns
- Helping their children make sense of and compare financial aid award letters, choose between loans, and decide how much to borrow
Parent as Borrower
A parent loan can be used in two ways:
- To come up with additional money when the family can't afford its share of college costs
- To alleviate a cash flow problem when the family can come up with its share, but not by the time payments are due
Some colleges and universities offer loans to parents, but the most common parent loan is the federal parent PLUS Loan. It's designed to supplement other forms of student aid, and should be taken out only when other federal loan options, with lower interest rates, have been exhausted.
The parent PLUS Loan has these advantages:
- Because it's not based on need, it’s available regardless of income or assets.
- The interest rate is fixed, at either 8.5 or 7.9 percent, depending on whether the college participates in the Federal Family Education Loan (FFEL) Program or the Federal Direct Loan Program.
- Parents can borrow enough to cover the total cost (tuition, room, board, books, and personal expenses) minus financial aid.
- It offers flexible repayment options—borrowers under the standard plan can take as much as 10 years to repay.
- Parents have to pass only a minimal credit check: they must demonstrate the absence of adverse credit. If they don't pass, they might still qualify by using a cosigner, known as an endorser.
- The application is easy to complete. Many lenders offer online preapproval.
Parent as Cosigner
Most private, or alternative, loans are made in the student's name. However, lenders almost always require a cosigner, since most students don't have a credit history. That cosigner—usually the parent—becomes responsible for repaying the loan if the student fails to do so. Most private loans are more expensive than federal loans and should be used only as a last resort.
More Resources
The College Board offers online tools and articles that make borrowing decisions easier. For example, the Student Loan Comparison Calculator helps you evaluate and compare the offerings of different lenders. There's also a collection of articles on loans written especially for parents.
Learn more about debt levels and annual borrowing patterns in the policy brief, How Much Are College Students Borrowing?
