Great Advice for Parents 2020

and scholarships, along with work-study, is largely determined by the family income reported on the Free Application for Federal Student Aid, or FAFSA. If there’s a gap to close after all financial aid is considered, your child may need a private loan. Private loans tend to carry higher interest rates than federal loans and don’t offer the federal protections, loan forgiveness and flexible repayment options that federal student loans do. And if your child is under 21, he or she will likely need a co-signer — only a few lenders make loans to borrowers with no credit history and no co-signer. If you co-sign a private loan for your child, you’ll be legally responsible for the debt if your child can’t pay. Co-signing a loan will also impact your credit history, and may make it more challenging for you to take on other loans or lines of credit. The only way to get your name off a co-signed loan would be paying off the debt; taking advantage of co-signer release after a period of time if your lender offers it; or by refinancing. Your best option is to exhaust all other financial resources before borrowing a private loan. If you co- sign a loan, discuss the seriousness of the debt with your child. If you do co-sign a loan, make sure there is a co-signer release policy. Don’t overborrow Parent PLUS loans The annual and overall limits on federal direct subsidized and unsubsidized loans can keep students from taking on too much student debt. But the lack of a similar limit for direct PLUS loans can lead to overborrowing by parents. Direct PLUS loans are federal loans that parents of undergraduates can take out to pay for their child’s college education; they’re also available to graduate students. PLUS loans are similar to private loans in that they require a credit check. Parent borrowers can take on up to the total cost of attendance annually in federal direct PLUS loans. Among those who borrow to pay for college, parents borrow an average $1,431 more in loans than students, according to the Sallie Mae study. In the 2016-17 academic year, parents borrowed an average $10,266 in PLUS loans, while students borrowed an average $8,835 in federal student loans. Taking on loans is especially costly for parents because interest rates on PLUS loans are significantly higher than those of federal direct loans available to undergrads: 7.08% compared with 4.53% for the 2019-20 academic year. For parents with good credit scores and solid finances, private loans could be cheaper.

• 25 •

Powered by