College Loans for Parents - Private or Federal
Guide to Parents "Getting College Loans"
Financing your child’s education is expensive. Unless you are receiving financial aid through a substantial government education grant or are fortunate enough to have enough money to cover these costs yourself, you are going to need a little help.
There are a number of options open to parents when it comes to college loans. The government’s PLUS scheme (Parent Loans for Undergraduate Students) has become a very popular choice. It offers parents an affordable means of supporting their child through college, or even a way of consolidating student debt that has already built up. College loans for parents are also available through private finance companies, albeit usually at a higher rate of interest.
Here at Guide4Home we have tried to make the world of educational loans as easy and straight-forward to understand as possible. Below are some of the main features of parental loans for students.
Federal College Loans for Parents
This type of loan is available to parents of an undergraduate student enrolled at least half-time at one of the approved PLUS loan schools. All applications will go through one of the Department of Education’s authorized lenders; Direct Loan or FFEL. Approval of your application is not determined according to wealth or income however a good credit history is necessary. The amount you are able to borrow is calculated by subtracting any financial aid your child is currently receiving from the total cost of his or her education. This cost includes all tuition fees as well as the price of books, accommodation, travel, etc. You are not obliged to borrow the maximum calculated amount; you are free to choose a lower loan value if you so wish.
Federal parent loans are classed as unsecured loans; this means that they do not require borrowers to guarantee the money against an asset, such as their home. The rate you are charged is a low, variable rate which is adjusted on a yearly basis and which becomes effective from July 1st each year. Current loans are charged at less than 4.2% and should never reach more than 9%.
Private College Loans for Parents
Some parents opt for a college loan through alternative lenders specializing in educational-related financial products. More often than not, the decision to borrow through programs other than those offered by Direct Loan or FFEL is taken because applicants have a poor credit rating rendering them unsuitable for a federal loan.
As a consequence, private loans are generally charged at a higher rate of interest. However there are always exceptions to this rule so it is important that you check out a number of different lenders and compare their charges before taking out a loan on behalf of your child. See our section on low interest college loans for more information.