College is expensive. Between tuition, fees, room and board, meals, housing and living essentials, there are quite a few expenses to meet. The cost of attendance can be complicated if you're sending more than one kid through school.
Many students and their families will need to take out loans to pay for college. While this is a common practice, it's important to do the research on terms and conditions to find the right solution that will still enable you to manage your household finances.
When considering the options, some families may weigh taking out a student loan vs parent loan. One gives parents the option to cosign a loan for the child, while the other is debt for which they are responsible. Let's compare how the two stack up and the benefits of each type so you can make a better financial plan.
Loan type
Student loans are available to undergraduate and graduate students alike. There are two major providers of student loans: the federal government and private financial institutions. Either way, when your child takes out a student loan, they will become responsible for the debt.
The biggest difference with parent loans is that you will assume responsibility for the debt.
Borrowed amount
The amount that can be borrowed through federal student loans is ultimately determined by the school your child will attend, taking into account other sources of financial aid and funding. With private loans, students can borrow as much or as little as needed — whereas federal student loans have annual and aggregate limits.
A parent loan can cover 100% of the school-certified cost of attendance, minus other financial aid, or be as low as $1,000. This gives parents wide flexibility to find a loan that works for them.
Interest rate
The biggest benefit of federal student loans is the fixed interest rate, which is controlled by Congress. Private student loans typically feature a variable interest rate. Others have a fixed rate, but often higher than what the government can offer.
Parent loans can have either a fixed or variable interest rate, which are competitive with the broader market. Plus, with some loan programs you can get a 0.25 basis point discount if you sign up for automatic monthly payments.
Eligibility
There is no age limit for government student loans. However, subsidized loans (for which the government pays interest when the student is in school) are only available to undergraduate students. Also, because many college borrowers are incoming freshmen without a credit history, they may need a cosigner.
Parent loans are not only available to parents but all other creditworthy individuals who want to finance the education of a loved one. That means grandparents, aunts, uncles, spouses, godmothers/fathers and even close family friends can pursue a parent loan.
Loan repayment
Federal student loans do not require students to make payments while in school, but some private student loans might. Also, the six-month grace period offered by the government before repayment starts is not a common feature of private loans.
There are two repayment options that you can take advantage of with a parent loan, adding to the flexibility:
- Interest repayment.
- Principal and interest repayment.
Terms and conditions
With private loans, your child will need to be aware of any prepayment penalties and other conditions related to repayment even if they haven't secured a job yet. Comparably, federal student loans can be deferred or forgiven in certain situations.
Parent loans come with no origination fees and no prepayment penalties.
Take the next steps today
Want to learn more about parent loans from Comerica Bank? Contact us today to begin the process or ask questions.
