Parent or student loans: Which is the best option?
Getting a university education is an expensive proposition. In fact,
about 20 per cent of college students will need some form of financial
help in order to pay for the expenses they will incur in school. With the
alarmingly high rate of students needing a loan for university, it
means that a large number of students will graduate from college with a
debt load that could even reach unmanageable levels. One way to work
around not having to get a student loan is for the parents themselves to
take out a “parent loan”. The question though is which among student loans
or parent loans are better.
Parent loans and student loans have their own set of advantages and
disadvantages:
Federal student loans possess the lowest interest rates as well as the
best repayment options. If you have any need to apply for a loan and
you can qualify for federal loans then make this the top choice for the
loan you want to apply for. As a way of limiting your loan
responsibilities only get the funds that you will need and refuse any other offers
to raise it. Parents can opt to extend assistance to their children in
paying off the loans when it comes time to repay the loan after
graduation
Federal parent loans or PLUS loans (Parent Loan for Undergraduate
Students) can be considered as another option in getting a loan that offers
lower interest rates. Parents that have dependent children who are
going to start their university education and have a good credit history
can apply for the PLUS loan. PLUS loans are not needs-based so you can
draw up a loan up to the total cost of your undergraduate education
expenses with the other financial aids that you have received deducted from
the actual total. One peculiar characteristic of a PLUS loan though is
that the first payment for the loan starts about 60 days after the loan
is granted. This is different from a student loan where the first loan
payment is deferred until after graduation. PLUS loans also require an
application fee.
Private loans can be taken by both students and parents in funding
university education expenses. The terms given for private loans are the
same as the federal-type loans. However, students can negotiate for the
repayment to commence after graduation. One way for students to gain a
good credit history is by taking out small private loans. They will need
to cosign though in order to get private student loans.
The big decision to be made is to determine which kind of loan will be
the best option for the individual. This boils down to a personal
decision. When deciding on which loan to get you should first determine the
amount of debt that your child will need in order to graduate from his
studies. You should also ask yourself the level of responsibility you
want your child to assume in paying off the loan. Finally you should sit
down with your child and try to work out a repayment plan in paying for
the loan.
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