How to take out parent loans for college

Key points

• Both federal and private student loans are available for parents to help pay for a child’s college education.
• Loan terms and repayment options can vary depending on the type of loan you choose.
• Parents should encourage their children to max out federal undergraduate student loans before borrowing themselves.
• Private parent loans may or may not offer deferred payments, so be prepared to start repaying your loan immediately.

As a parent, it’s natural to want to do anything to help your child succeed, and that often extends to college funding. Even if your child can borrow money on their own to pay for school, there may still be a gap. “While the undergraduate has much more favorable terms, the amount of loans they can take on is limited, in many cases well below the actual cost of attendance,” says Erik Kroll, a certified financial planner and owner of Student Loans Over 50.

If you have plans to borrow money to help put your child through college, here’s what you need to know about your options.

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Federal and private parent loans for college

As a parent planning to take out a student loan, your choices include Parent PLUS Loans through the U.S. Department of Education and student loans from private lenders. Here’s a quick summary of how each works, as well as some pros and cons:

Parent PLUS loans

Parent PLUS Loans are federal student loans that you can apply for after your child fills out the Free Application for Federal Student Aid (FAFSA). Unlike most federal student loan programs for students, the Parent PLUS Loan program requires a credit check, but only to determine that your credit history doesn’t contain any major negative items, such as a recent foreclosure or bankruptcy.

You can take out a Parent PLUS Loan if you’re the biological or adoptive parent of the student, or a stepparent—as long as you are married to the biological or adoptive parent. (If the biological/adoptive spouse dies, the stepparent can no longer borrow a Parent PLUS Loan unless they’ve legally adopted the student.)

Also, the student must attend an undergraduate program at least part-time—parents can’t use a Parent PLUS loan if their child is in graduate school. If eligible, you can borrow up to the cost of attendance at your child’s school minus any other financial aid they’ve received.

The interest rate for Parent PLUS Loans is standardized for all who qualify and is updated every school year. For the 2022-23 school year, the rate is 7.54% fixed. The loan program also charges an upfront loan fee, which is deducted from your disbursement. For the same academic year, the loan fee is 4.228%.

The standard repayment plan is 10 years, but you may be able to extend it to up to 30 years. You can either start making payments immediately or request a deferment while your child is in school at least half-time. If you choose this option, the deferment period includes six months after the student graduates or drops below half-time enrollment.

Parent PLUS Loans can be great if your credit isn’t in good enough shape to get a good interest rate on a private loan, and there are options for forgiveness and income-driven repayment if you qualify. However, the interest rate and loan fee are higher than student loans, so encourage your child to max out their allotment before you borrow.

Private parent loans

Many private lenders offer student loans for parents; these have no financial backing from the federal government and the loan terms can vary from lender to lender. You’ll need to undergo a credit check when you apply, and your loan terms, including your interest rate, payment and repayment term, will depend on your creditworthiness.

Your interest rate with a private lender may be higher or lower than the rate for Parent PLUS Loans, based on your eligibility. You may be able to choose between fixed and variable interest rates. Private lenders also typically don’t charge upfront fees.

Private parent loans may or may not offer deferred payments, so be prepared to start repaying your loan immediately. Repayment terms can range from five to 20 years, depending on the lender.

They can give you the chance to get a lower interest rate and skip the upfront loan fee. But they can also be more expensive, and there are fewer options for relief if you can’t make your payments.

Getting and paying off parent student loans

If you’re planning to borrow money to help your child pay for school, here are some tips to help you with your decision and for paying down the debt:

Think about your future

If taking out the debt would significantly impact your financial future, it may not be worth it for you or your child. “Recognize that if you haven’t saved properly for your long-term goals or retirement, you could end up putting a financial strain on your child if they have to take care of you in your later years,” says Kroll.

Start paying immediately

Even if you have the chance to defer your payments, “parents should make payments immediately so that the interest doesn’t capitalize,” says Kroll. Capitalized interest is interest that accrues during a deferment period and is added to your principal balance once repayment resumes. So if you hold off on payments, you’ll have a larger loan balance.

Research payment resources

If you have Parent PLUS Loans, consider a longer repayment term or the income-contingent repayment plan if you’re struggling to make payments. Alternatively, you may be able to get a lower interest rate and more flexible repayment terms by refinancing your federal or private loans with a private lender.

However you choose to approach parent loans for college, be mindful of the costs and do your homework on relief and repayment options so you have a clear picture of what’s involved.