So, you’ve nurtured your child through school and, finally, it’s time for them to apply to college. They’ve got big dreams and aspirations to apply to their dream school, yet you realize their dream may seem more distant than you’d anticipated.
College costs have been skyrocketing in the past few decades. With current prospective students facing increasingly-expensive fees—growing at an astounding 8 times faster rate than wages!—it’s no wonder college is becoming unaffordable for several people. As a parent who’s dedicated their entire life to their children, you want to see them succeeding and achieving their goals.
It’s only natural for a parent to want to help their child when they need it most—luckily, you can do this with parent loans. With low interest rates, flexible repayment terms, and student loan refinancing options, this personal borrowing offers a viable option to parents of aspiring students.
What Are Parent Loans?
There are a lot of costs to cover when your child is gearing up to head to college. Apart from tuition costs, you also need to provide for their accommodation, food, travel, course materials, and commuting costs.
A parent loan is a federal or private student loan program that aims to help parents cover the cost of their child’s education. While there are various financing options you can explore, not all of them will cover college costs. Need-based financial aid is difficult to qualify for, scholarships are competitive, and a teachers’ assistantship may not cover the entire cost of their education.
By borrowing money for a parent loan, you give your child the gift of starting their career without a considerable loan bogging them down.
Parent loans can be taken out for undergraduate studies, giving you the chance to cover the remaining costs that aren’t covered by other financing options. Regardless of the type of loan you choose, you’ll be assessed for eligibility since you’re taking on the financial responsibility of the loan.
What Is The Eligibility Criteria?
Parent Plus loans are a viable option for parents who want to support their children through college. By giving parents the ability to take out a personal loan to finance their children’s education—even when they don’t have the required finances—opens the door for their future success.
- The first criterion for eligibility is that you are the parent of the dependent student. If the undergraduate student is independent, their parents will be unable to secure a loan for their education.
As long as your biological child is enrolled as a half-time or full-time student at college, you’re eligible for a parent loan. However, stepparents who are married to the student’s biological parent are also able to borrow.
- A good credit score is the second criteria for securing a parent loan. With almost 19% of borrowers on the verge of defaulting on their student loans, lenders are cautious about who they approve for a loan.
Presenting yourself as a low-risk, responsible borrower requires a positive credit score. Your history of debt repayment also plays a vital role in the interest rate of your loan and, thus, impacts the repayment process.
You may be able to attain a parent loan with a less-favorable credit history if you can arrange an endorser who’ll guarantee the loan repayment if you’re unable to.
How Can You Repay These Loans?
Parent loans are beneficial for a variety of reasons, one of which is the flexible repayment options they offer. When you’re borrowing money to finance your child’s education, you can take out as much as you need to cover their costs for the duration of their degree. The ability to borrow such a hefty amount of money also means that you need a reliable repayment plan.
Parent borrowers are liable to repay the amount once the final disbursement is complete. While you may request a deferment for a short period of time, the interest will continue to accumulate and increase your payable amount.
Let’s explore some of the ways you can repay your child’s student loan debt:
Choose a plan that suits you
Student loan borrowing is a long-term commitment that you may continue to repay long after the student has graduated and moved into their career. Depending on the lender you opt for, you’ll have a considerable degree of freedom in choosing a repayment plan that works for you.
Federal parent loans are eligible for three different repayment plans that span over varying periods— these are:
- The standard repayment plan which requires the repayment of the principal amount and interest over a 10-year period.
- The extended repayment plan spans over a longer period, with fixed monthly payments to be made for up to 25 years. This is a viable option for some because it offers considerably low monthly payments compared to other income-based plans.
- The graduated repayment plan involves monthly payments that gradually increase over time. Starting off at a meagre repayment amount that covers only the interest, the amount increases every two years over the period.
Private lenders also remove the obstacles to loan repayment by offering flexible payment terms that span over 5, 7, or even 10 years. This low-interest borrowing option offers greater control with regards to the terms of the loan; the interest rates, repayment time, and monthly contributions can be tailored to your needs.
Income-Contingent Repayment Plans
According to research, parent borrowers owe an astounding $87 billion in just federal loans—and this isn’t even accounting for private borrowing! With such high outstanding amounts to be repaid, borrowers look for any viable repayment strategies.
Anyone borrowing a federal student loan is eligible for Income-Contingent Repayment (ICR). This program simplifies loan repayment for people struggling to repay loans by offering lower monthly payments and basing them on the borrower’s current circumstances.
While federal parent loans aren’t eligible for ICR, you can consolidate your existing loans to take advantage of income-driven payment plans for Direct Consolidation Loans.
Refinance your parent loans
If you’ve missed a few monthly payments and are on the verge of defaulting on your loans, student loan refinancing with ELFI can offer some much-needed relief. Student loans can easily be refinanced through a private lender to make the repayment process easier for you.
Refinancing the student loan gives you the chance to avail lower interest rates and better repayment terms, making it easier to stay on top of your debt. By paying off your existing loan and obtaining a new one with a private lender, you can enjoy more flexible terms to pick ones that suit you best.
Interest payment savings, lower interest rates, reduced monthly payments, and longer repayment schedules are some of the many reasons refinancing your student loans options is popular among borrowers.
At the time of refinancing, you have the option to transfer the loan to your child or keep it under your name. This is a logical choice for many since their children may now be employed and have a better credit score—making it easier to secure better refinancing terms—or because their child can now the financial burden.
Either way, student loan refinancing offers variable and fixed rates, along with a myriad of other benefits, that help you gain a firmer footing when it comes to the dreaded student loan debt.
A Final Word
Making your child’s college aspirations a reality doesn’t just have to be a distant dream. Parent loans will help you secure the financing you need to cover the costs of attaining a degree or fill in the gaps left by inadequate financing solutions.
Make sure you seek expert advice before you take out any parent loans or repayment plans to ensure you avail the most favorable terms for your needs.
