Borrowing: The Parental Role
Going to college is a wise investment in the future. Most families pay for college using savings, current income and loans. Although most loans are designed for students, many parents take out federal Parent Loans for Undergraduate Students (PLUS).
Like other parts of the college planning process, the borrowing process should be shared between parent and child. By working together, families can borrow sensibly and make sure they get the best financing possible.
Parent as Partner
Assisting with the bills isn't the only way parents can help their child afford college. Parents can also help by:
- Coaching their child on getting organized — for example, encouraging them to contact colleges and set up a calendar of deadlines
- Reading about college loan options
- Discussing family finances and responsible borrowing
- 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 parents have completed their tax returns
- Helping their child 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 help your family:
- Come up with additional money when your family can't afford its share from current income and assets.
- Alleviate a cash-flow problem when your family can come up with the family share, but not by the time payments are due.
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:
- Is available regardless of income or assets
- Has a fixed interest rate
- Can be used to cover the total cost (tuition, room, board, books and personal expenses) minus financial aid
- Has flexible repayment options, with up to 10 years to repay
- Requires a minimal credit check; the parent borrower only needs to show the absence of adverse credit
- Has an easy-to-complete application
Parent as Cosigner
Most private 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:
- Our 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 How Much Are College Students Borrowing?
