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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