Are you a parent hoping to one day send your offspring to college where he/she will earn a degree, start a successful career, and ultimately create a healthy, happy life for themselves? For many families, this often equates to having to take out a student loan to cover tuition and various related college expenses.
If you fall into this category as a parent it’s important to understand student loans and be clear on the terms in order to aid your college-bound kids into entering adulthood correctly without risking their own financial well-being.
Here’s a handful of tips parents should be aware of when it comes to student loans:
FAFSA: Students should start the process by completing the Free Application for Federal Student Aid to determine their eligibility for federal loans and grants. Students from low-income families, for example, may possibly qualify for a Federal Pell Grant worth up to $6,095 annually.
Federal vs. Private:Students and parents should consider if they should take out federal or private student loans. Compared to private loans, federal loans often offer lower interest rates along with better repayment options such as income-driven repayment and postponement of payments. Additionally, private lenders typically require a co-signer – a parent – meaning parents are responsible for any late or missed payments. It’s risky business, as any issues with a student’s repayment will damage parents’ credit scores and may prevent them from taking out other loans in the future.
Parent PLUS Loan: Parents who want to help pay for college but may not have the money saved can also apply for a Parent PLUS Loan. Among the benefits, this loan offers a fixed interest rate, flexible repayment terms, and a tax deduction on interest up to $2,500. Unlike other federal student loans, the PLUS loan requires a credit check.
Repaying a Loan: How long will it take to repay a student loan? Few people ask this before borrowing money for those college years. Using a student loan payoff calculator can give parents and their children an idea of what monthly payments might be and encourage students to carefully plan their career path and earning potential.
College vs. Golden Years: Paying a child’s college expenses is a generous – and expensive. It’s key for parents to take a realistic approach – helping offspring choose an appropriate school at an affordable cost vs. setting their sights on an unjustifiably expensive, college. Additionally, parents are wise to consider their own finances before opting to take out a loan for their child’s education. This is important for parents who may already have debt or whose retirement accounts are small. If this is the parents should choose their own financial needs first.
According to the National Center for Educational Statistics by “2027, total undergraduate enrollment is projected to increase to 17.4 million students. In fall 2016, total undergraduate enrollment in degree-granting post-secondary institutions was 16.9 million students, an increase of 28 percent from 2000, when enrollment was 13.2 million students.”
Will your child be among them?