College Planning

Parents: 10 Things You Need To Know Before You Borrow

You should know a few general facts before you decide to co-sign on a student loan for your child. It is important to understand the financial commitment you are undertaking.

Before you agree to co-sign on a federal or privately-funded student loan, or take out federal Parent PLUS or private loans in your own name to help your child get money for college, there are a few general facts you should know before making such a financial commitment.

  1. Most colleges and universities offer tuition payment plans that will allow you to pay off the remainder of your child's tuition, room and board not covered by scholarships, grants, or loans in monthly installments over the course of the semester or the year. If you can afford to do so, these plans can be a great option.
  2. Tuition payment plans are usually interest-free, though there may be small enrollment fees to pay. If you can't commit to paying the full amount, try and pay what you can afford. Paying out of pocket is generally preferable to taking out student loans.
  3. If your child needs money for college, federal student loans have some of the best terms and interest rates available. Taking out a reasonable amount of student loans in your child's name to cover the costs of tuition and living expenses, shouldn't sink them financially in the future, especially with the many different repayment options such as Income-Based Repayment plans and Pay As You Earn plans.
  4. Federal student loans require no credit check if they are in the student's name, but there is a credit check required for PLUS loans. You do have the option of adding a more credit-healthy co-signer to the loan, but then that person will become responsible for the loan if you default. You can find out more about PLUS loans at the Federal Student Aid website.
  5. You are not required to make payments on PLUS loans and most private loans while your child is still in school, but if you can afford to, you should at least consider making minimal payments to cancel out any interest that accrues. If you can afford to make more substantial payments while your child is still enrolled, you'll be well ahead of the game by the time they graduate.
  6. Private loans generally have less generous terms, interest rates, and repayment options than federal loans. Use them only as a last resort, and carefully examine any paperwork before you sign off on a loan. There are many private lenders out there, so be sure to comparison shop.
  7. If you must consider taking out private student loans for your child, you should also assess whether a private bank loan or home equity loan might provide you with better terms and interest rates. Again, shop around.
  8. If you co-sign on a PLUS loan, and you or your child die or become permanently disabled before the loan is paid off, the remainder of the loan is discharged. If your child takes federal loans out in their own name, they are also discharged in the event of their death, and no parent or surviving spouse will be responsible for repayment.
  9. Private student loan debts are NOT always discharged in the event of you or your child's death, especially if there is a co-signer on the loan. Private lenders will usually require a co-signer to keep making payments on the loan until the debt is settled, after attempting to collect what they can from the deceased's estate. In some cases they can even try to reclaim the debt from the deceased's spouse, regardless of whether they were a cosigner or not, depending on state laws.
  10. Every parent wants to help their child in whatever way they can, but it's important not to risk compromising your own financial security or retirement plans by doing so. If at all possible, try to avoid borrowing from your retirement accounts.
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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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Parents And Student Loans

If you are a parent, you want the best for your child. That means ensuring that they have the resources to pursue a quality college education. If you're in a position to help your child with paying for college, there are some things you need to know before cosigning or taking out federal Parent PLUS loans. This article looks at what parents need know before they borrow for and with their child. Paying for college by co-signing for a parent student loan is a big decision, and it's good to have all the information you can possible. For more information, visit the Protective Life Learning Center.

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