When you look in the variety of funding possibilities to pay for college, it's not hard to feel overwhelmed. Between federal loans, home equity, parent loans, and private student education loans, where would you even start?
According to a survey of 3,510 parents of school students from College Ave Student Loans conducted by Barnes & Noble College InsightsSM in April 2023, 69% of oldsters found the entire process of figuring out how to pay for college to be the most stressful area of the college process.
To make it easier for you personally, we reached out to several parents within our Affording university 101 Facebook group. They shared their stories and shared why they provided the choices they did.
Here's the things they needed to say…
Max Out Federal Student education loans and School Aid First
In laptop computer mentioned above, 59% of oldsters said that college was more expensive than they anticipated. All of the parents we spoke with focused on taking out federal student education loans first. These have fixed interest rates and therefore are only in the student's name.
In addition, if there is any school aid or scholarships available, these were obviously a first choice.
When there is still an economic gap – because there will be for many families – the rest of the options are to make use of home equity, Parent PLUS loans, or private student or parent loans.
No one we spoke to took advantage of home equity, but several parents have shared within the group that a home equity credit line (HELOC) was a part of their strategy. It may be a good option for you personally too!
Parent PLUS vs. Private Loans
In the school Ave Student Loans survey mentioned earlier, 15% of parents choose federal parent loans while 11% chose private student loans. All the parents we spoken with chose private loans instead of Parent PLUS. There were two main reasons.
Interest Rate
One primary reason parents reject PLUS loans may be the rate of interest. Parent PLUS loans are available from the federal government, and offer fixed rates of interest. However, the rates might be higher than private loans. In addition, an advantage loan comes with an origination fee of 4.264%, which dramatically increases the price of the loan.
That turns people off. As one parent we spoke to place it: “Percentage rate was number 1 for us.”
Another parent shared, “I went with the private loan provider I selected as their rates of interest were better than some that I had found.”
Interest offers quite a bit related to just how much you'll pay with time, especially if you're deferring payments until after your student graduates.
Student Responsibility
Another big reason to consider private student loans is your student will have a few of the responsibility.
One parent we spoke to explained: “I wanted her to have some responsibility together with her education (you're more likely to work hard at it if you're paying something!)”
Another aspect of student responsibility is when quickly you can remove yourself like a cosigner. All students not have the credit score and income to qualify by themselves. If you find yourself cosigning, you want to be sure you can be free of the loan in the future.
One parent shared, “One in our primary considerations was when we could petition to get rid of ourselves as cosigners.”
Requirements for releasing cosigners vary bank to bank, so it's important to inquire about these details while doing all of your research.
In a recent Facebook Live, Angela Colatriano of College Ave Student education loans shared that student borrowers of school Ave loans can request to have cosigners released when more than half of the loan's scheduled repayment period has elapsed.
In addition, the student borrower must show income for the previous two years that is a lot more than twice the outstanding balance of all their loans with College Ave, have on-time payments which are more recent 24 consecutive payments, and a credit agency review that does not show late payments on any other obligations within the last 24 months.
So if one of the objectives is to ultimately have your student be the sole borrower, then researching and understanding all the requirements for being released as a cosigner should be of prime importance for you.
Compare Payment Options
Besides rates of interest and being removed like a cosigner, the parents we spoke with all had specific preferences for payment terms.
One parent said, “I wanted one having a low interest rate, that will cover 2 yrs (he would be a transfer student from a community college), which i could pay the interest on monthly, and that wouldn't be due until six months after graduation.”
Many private loans are able to be deferred until graduation, but interest continues to accrue. You may want to make payments for your student during school. One parent said, “I am paying trying to get a lot of it paid off before she gets out but also trying to build her credit up.”
Some lender websites have tools that will help you calculate and compare different repayment scenarios. Using College Ave Student Loans' interactive calculator, you are able to calculate what the impact is of coughing up different amounts while your student is in school, around the overall cost of the loan. The calculator also lets you see what choosing different number of repayment years is going to do to your overall loan costs.
Here are some other activities to consider:
- A lot to choose from for loan duration, which gives both you and your student maximum flexibility
- Options for in-school payment: either interest-only or a low flat payment amount
- The ability to defer full repayment until 6 months after school ends
- Loan forgiveness if the student passes away or perhaps is permanently disabled
- Forbearance and hardship options in case your student struggles after graduation
Other Words of Wisdom
We asked each parent the things they want other parents to understand about the loan process.
Here's what they had to say…
“Definitely compare lots of different institutions. It can save you lots of money over the lifetime of the borrowed funds.”
“Everyone’s needs are different. I would suggest looking at all the possibilities. I'd tell parents to not enter into an excessive amount of debt. Carefully choose what you can afford to pay and assume your child will not have a job immediately after graduation. Select a lender that responds to questions and it is easy to contact.”
“The education loan journey is a wild ride however in the end you have to do what is right for you and your loved ones.
I have been receiving some sites which say “do require out loans.” Well, that would be great should you got more merit from schools!
My daughter was a good student in senior high school and yes, she ended up getting merit money most from out of state schools, but in the finish even with their merit aid, in-state was still the best option and much more cost efficient in my family.”
Everyone needs to make the choice that's right for his or her situation. Hopefully that the information from all of these parents helps you know where to turn!
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