While college students can get their own federal student loans without a cosigner in most cases, there are some situations where a cosigner is required. Federal Direct Parent PLUS loans, for example, can actually be taken out on behalf of dependents to help pay for higher education. Students can also apply for private student loans to pay for college. These loans tend to have high credit requirements that make it difficult for young people to qualify on their own.
But should you really cosign on student loans for your child? And should you cosign on any loans they can’t qualify for on their own? You can certainly consider it, but it helps to enter the situation with eyes wide open and understand all the pros and cons.
The main advantage of cosigning is the fact that you’re helping your child (or dependent) pay for higher education when they may not be able to otherwise. However, it can also be a huge risk. Here’s everything you need to know before you sign on the dotted line.
You’re obligated to repay the debt no matter what
Whether you take on a Parent PLUS loan or you cosign with your child for a private student loan, the first thing you have to understand is that, no matter what, you’re obligated to pay that debt back. If your child stops making payments, you’ll be required to make them. If your child flat-out refuses to get a job and completely defaults on their responsibilities, you will need to repay that loan.
Cosigning on a student loan is similar to buying a house with someone or cosigning on a car loan. You’re both jointly responsible for repayment regardless of what the other person does. That can be a huge problem if your child doesn’t take their bills very seriously, but it may not be an issue if they treat their credit with care and stay on top of their bills.
Student loans are almost never discharged in bankruptcy
Another detail to understand is the fact that student loans are rarely ever discharged in bankruptcy. For the most part, they’ll stick around forever unless the borrower dies or you can prove you have some inescapable hardship.
As a parent, you’re probably trying to save for retirement and reach other financial goals, so it’s important to understand that the student loans you cosign for will never go away until you pay them off — once and for all.
There’s no going back
When you cosign on a student loan, you can’t just change your mind and back out of the deal. Your child may be able to refinance their student loans in their name, but only if their credit score is good enough to qualify for student loan refinancing on their own. And if that was the case, they wouldn’t have needed a cosigner in the first place.
Your finances may be perfectly fine right now, but you should think through how they may be in five or 10 years. If you’re nearing retirement, you may not want to put yourself in a situation where you’ll be stuck paying off a child’s student loans. Plus, you never know how your health will be or the status of your career several years from now. Cosigning for student loans leaves you on the hook no matter what, and it’s hard to change that after the fact.
Cosigning on a loan could affect your credit score
When you cosign on a student loan, you have to remember that you’re jointly accepting responsibility for the debt and any consequences that arise out of late payments or delinquency. So you should only cosign if you know your child or dependent is dedicated to paying their bills on time and avoiding default at all costs.
If you’re not paying attention, you could easily take a huge hit to your credit score without even knowing. Since payment history makes up 35 percent of your FICO score, it’s easy to see how even one late payment could cause major damage. Just think of what could happen if the student loans you cosigned for were paid late month after month. If you’re not also receiving a bill in the mail, you may not find out until the damage is already done.
The bottom line
There are situations where it can make sense to cosign on a student loan, but this decision should never be taken lightly. You may be helping your child earn their degree, but you’re taking a significant risk. (See also: Should You Co-Sign a Loan?)
You may want to assess the career field they plan to enter into and figure out how much they might earn upon graduation before you cosign. Some fields have plenty of promise right now, while others offer almost none, and you should know either way before you make any type of financial commitment. Maybe your college student could even spend time improving their credit score so they can qualify for student loans on their own.
Cosigning on student loans should be a last resort for parents, not an easy fix for students who don’t take time to consider all their options.
Whether you’re a recent college grad or you attended college years ago, there’s a good chance student loans have impacted you.
The current American student loan debt burden is $1.46 trillion — and over $166 billion of that is delinquent or in default.
While mortgage debt has risen with inflation by about 3.2% since 2009, student loan debt has grown 102% over the same time frame.
The stats are painfully depressing. But what does all that mean if you’re an average person trying to get by and have some promise of a future?
It means you need to prioritize paying back your student loans, and fast.
Why You Should Prioritize Paying Student Loans Off Fast
Easy enough to say, right? It’d be nice to pay off student debt, buy a house and not have to stress about money every month.
But to make it happen, you need to know how to pay off student loans quickly. It’s the best way to get out from underneath their burden and get your financial life on track.
If you aren’t convinced, here are some concrete reasons:
Student loan debt — whether it’s private or federal — is almost never dischargeable in bankruptcy. In the rare cases that you can get them discharged, most bankruptcy courts will require you to prove three things in what’s known as the Brunner test:
Based on your current income and expenses, you can’t maintain a minimal standard of living if forced to pay off student loans.
Your inability to pay is likely to continue for a significant portion of the repayment period of the student loans.
You have a history of trying to repay your loans.
Even if you eventually qualify for forgiveness, you’re likely to pay taxes. Unless your federal student loan debt is discharged under the Public Service Loan Forgiveness (PSLF) program, which is only available to government and nonprofit employees, you’ll have to claim the forgiveness on your taxes in the year your loans are forgiven and pay taxes on that amount as if it were income for the year.
If you’re unable to make that payment to the IRS in a lump sum, you’ll have to pay fees and interest until it’s paid in full.
The consequences of student loan debt will continue to hold you back. According to Bloomberg, student loan borrowers ages 40 to 49 are defaulting at a faster rate than those in any age group — perhaps because they’re now sending their kids to college.
And you still want to retire, right? The later you get started investing in your 401(k) and IRA, the more money you’ll need to contribute to retire.
How to Pay Off Student Loans: 11 Simple Strategies
So now you see why it’s so important to pay off student loans quickly. But how do you do it? We’re here to help you figure that out with these 11 strategies to paying off student loans fast.
1. Build an Emergency Fund
It may sound counterintuitive to save money instead of throwing it at your debt, but think about it: Emergencies come up all the time, especially in times when you’re low on cash.
Aim to save at least $500 to cover unexpected expenses, and you’ll find your student loan repayment will face fewer setbacks.
By having a rainy day fund in a savings account, you won’t have to put those emergency expenses on a high-interest credit card or use the money you were going to put toward your student loan.
2. Take Inventory of Your Student Loan Debt
Log in to all your loan servicers’ websites, and write down the full amount you owe to each. If you’re unsure who your loan servicers are, you can use sites like Credit Sesame to run a soft credit check and see everyone you owe money to.
You’ll also need to determine if the loan is private or federal. You can check the National Student Loan Data Center for a list of your federal loans. Any loan not listed there is most likely private.
This is important, because your options for repayment will differ based on whether your loan is backed by the federal government.
3. Figure Out if You Qualify for Public Service Loan Forgiveness
Eligibility for the Public Service Loan Forgiveness (PSLF) program seems straightforward: If you’re a government or nonprofit employee, you can enroll in PSLF and have your federal student loans forgiven tax-free after 120 payments.
However, actually having your forgiveness approved can be difficult — 99% of the first applicants were rejected.
But if you’re working in an eligible field, it’s a no-brainer to at least try for it.
4. Determine Your Eligibility for Income-Driven Repayment Plans
The standard repayment term for federal student loans is 10 years, but if you have difficulty making payments, you have four main options for lowering them that take your income and expenses into account.
Note that these plans aren’t actually forgiveness programs; they’re repayment programs with a forgiveness option.
With all these plans, you must resubmit your income and family size every year to determine eligibility. Married couples will have to submit their combined income.
You’ll be required to pay income tax on the amount forgiven, which you must pay in a lump sum to avoid fees and interest charges from the IRS.
Use a student loan calculator to determine which of these is the best for you to enroll in. Even if you don’t want to use the forgiveness option, it is worth enrolling in one if you’re eligible as a failsafe against future financial hardship. Here are your major options:
Income-Based Repayment Plan (IBR)
If you took out your loan on or after July 1, 2014, you’ll pay 10% of your discretionary income monthly. If your loan isn’t paid off after 20 years, you can apply for forgiveness for the remainder of your loans.
Income-Contingent Repayment Plan (ICR)
An income-contingent repayment plan caps your monthly payments at 20% of your discretionary income. You must consolidate your loans before you can apply for ICR. You will be eligible for forgiveness after 25 years of payments. If you have Parent Plus loans, you will only be eligible for ICR.
Pay as You Earn (PAYE)
This program is just like IBR but for those who took out loans after October 1, 2007, and before July 1, 2014. Forgiveness is available after 20 years of payments.
Revised Pay as You Earn (RPAYE)
RPAYE is like PAYE but for those who don’t qualify for any other program. Forgiveness is available after 20 years of payments for undergraduate loans and 25 years for graduate or professional school loans.
5. Lower Your Interest Rates
Federal student loans already have pretty low interest rates — 3% to 5% — compared with debts like credit cards and personal loans, so lowering them won’t make a huge impact. But every little bit helps, so here are a few ways to lower your rates:
Student loan refinancing. With a good credit score and steady income, you can refinance both private and federal student loans for a potentially lower interest rate. Sites like Credible let you compare rates across refinancing companies.
Make sure you’re on auto debit. Signing up for automatic payments not only ensures you make payments on time, but most servicers also lower your rate by 0.25%.
Call your loan servicer. Private student loans tend to have higher interest rates than federal loans, but the good news is that you have more flexibility in lowering your interest rates. Jessica Blydenburgh of St. Petersburg, Florida, made a call to her private loan servicer and was able to prove income hardship to get her interest rate dropped from 15% to 5%.
Blydenburgh’s loans were through Navient, which has an income-driven repayment plan for private loans. She had to list all her expenses and her income to show what monthly payment she could afford. “You literally have to itemize your whole budget,” she said.
Navient determined that at her current interest rate, her payments would only apply to the interest, so the company lowered her rate to allow her monthly payment to cut into the principal.
She has to update her income and expense status every year to maintain the rate.
6. Make a Plan for Repayment
After educating yourself on your options, you’ll need a plan to pay off your loans. Think of it like plugging your destination into Google Maps: There are a few routes you can take, and one might save you a few minutes, but any route is going to go more quickly than just winging it.
We’re big fans of the debt avalanche and debt snowball methods to pay off debt.
With the debt avalanche method, you’ll start with your highest interest loan. You focus on putting extra payments toward that loan first, then once it’s paid off, you focus extra efforts on your next highest interest loan.
The debt snowball method starts with your loan with the lowest balance. You put extra toward that loan, and once it’s paid off, you focus extra efforts on your loan with the next-lowest balance.
If you’re motivated by math, you might find that the slight savings of the debt avalanche appeals to you. If you’re motivated by quick wins, the accomplishments you’ll experience early on with the debt snowball will get you through those tough first months.
7. Budget for Your Monthly Payments
While there are several types of budgets to help you allocate your money, there’s one that stands out above the rest when you’re trying to pay off debt fast: the zero-based budget.
The zero-based budget model allows you to prioritize your expenses. Using your income, you’ll go down your list of expenses, “paying” all of them until you’re at zero.
Why does it beat out the rest in the need for speed? While percentage-based budgeting methods tell you how much to pay off every month, the zero-based model puts you in charge of that decision.
You can put debt as high on your list of priorities as you want and contribute more if you have money left over.
One month you could put 30% of your take-home pay toward your loans, and the next you could put 55%.
8. Get a Side Hustle
There’s no easier way to have more money to put toward debt than making more of it. Don’t be discouraged if you have limited spare time, are confined to your home or think you have no profitable skills to offer — trust us, there are a ton of ways to make extra money.
Some of our favorites are freelance bookkeeping, dogsitting, selling your stuff, delivering groceries and renting out a spare room.
9. Cut Your Expenses
There’s only so low you can go with cutting expenses, but by trying to cut a little more every month, you’ll gain momentum — and motivation to see how close you can get to zero.
Here are some ways people told us they saved money while they paid off their student loans.
Val Breit used a flip phone to avoid paying for a data plan as she got rid of $42,000 in student loans.
Cody Boorman traded in his car for a cheaper one to eliminate his car payment while he and his wife, Georgi, paid off $56,000 of student loan debt.
Phil Risher stuck to free activities like hiking to keep him busy while tackling $30,000 of student loans.
Your budget will help you examine your spending and identify options for creatively cutting your spending.
10. Make Above-and-Beyond Payments
Making minimum payments will help you tread water, but you won’t cross the ocean with that mentality. The only way to pay off student loans early is to make payments that are above the minimum due, or make extra payments throughout the month.
If you’re using all the strategies above, this will be a natural progression. But it can be tempting to treat yo’self with your newfound extra cash. A tip for sticking to extra payments is to schedule them.
If you’re increasing your regular monthly payment, schedule your larger payment for just before your regular payment, and select “advance due date” so you don’t get double-charged.
Because interest accrues daily and is always the first part of your student loan payment, advancing is usually the best way to pay more principal and less interest in every payment.
If you think “advancing” the due date might tempt you to skip a few payments, make smaller, more frequent payments every week or every other week.
And lastly, plan to send any extra money from bonuses, windfalls or tax refunds straight toward your debt.
11. Go for a Raise or Promotion
One final tip is to focus on your career as a way of increasing your income. While side gigs are great for making some quick money, your long-term wealth relies on your main gig.
That means you should ask for that raise, going for that promotion and apply for better jobs outside of your company.
Even if you don’t intend to leave your job, having an offer from another company is a powerful negotiating tool when you’re seeking better compensation and benefits.
And when you’re deciding between jobs, check to see if the company offers student loan repayment assistance. Many companies, including Fidelity, Staples, Aetna and Live Nation, now offer student loan assistance as a benefit for employees.
Jen Smith is a staff writer at The Penny Hoarder. She and her husband paid off $78,000 of debt in less than two years on two less-than-average salaries. She gives money-saving and debt-payoff tips on Instagram at @modernfrugality.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Getting credit when your score is low or you don’t have a strong credit history can be challenging. One way many people solve this problem on their first loan is by getting a cosigner. But this isn’t always an option for everyone. Find out more about this process, as well as how to get a loan without a cosigner, below.
What Is a Cosigner, and Why Would You Want One?
A cosigner is a person who agrees to be responsible for a debt if you can’t or don’t pay it. Typically, you get a cosigner when you don’t have sufficient creditworthiness on your own to qualify for the loan you need. The cosigner’s credit score and history are considered when approving the loan.
Some reasons you might want a cosigner include:
You’re young and haven’t had time to build a credit history yet, so you don’t qualify on your own for the loan you want.
You need better credit to qualify for more favorable terms.
You have credit history, but some financial mistakes in the past have left it lackluster and you want assistance getting new credit so you can rebuild your credit history.
Reasons You Might Not Have a Cosigner
Not everyone in the above listed scenarios needs has a cosigner, though. Here are some reasons why you might not have a cosigner even if having one could help you get a loan.
You Don’t Have Access to a Cosigner
First, you simply might not have access to someone who can act as cosigner. Cosigners must have better credit than you to do much good, and they also have to be willing to put that good credit on the line to help you.
If you don’t make the payments on your loan, the cosigner’s credit is also hurt. They might also end up on the hook for the payments. This risk can limit who is willing to act as a cosigner.
You Want to Take Full Responsibility for the Loan
In some cases, you might have access to cosigners but want to avoid using them. Perhaps you want to avoid tying up a family member’s credit with your own loan. In other cases, you may simply want to avoid having loved ones be that involved in your financial affairs.
This is obviously a personal decision, and you have to decide what would be best for you and your relationships.
Tips for Getting a Personal Loan With No Cosigner
Whether you decide against a cosigner or don’t have access to one, you do still have options. Check out these tips for how to get a loan without a cosigner.
Some lenders are more flexible than others. Credit unions—especially ones in which you belong to already—tend to have more flexible requirements than larger banks. And online lenders can often afford to be more flexible because they aren’t covering the costs of physical locations.
Just remember not to apply for every loan you see. Each loan application can result in a hard inquiry on your credit, which can damage your score a little each time. Instead, read through all the requirements and talk to the lender if possible to determine whether you are likely to qualify for a loan before you apply.
Improve Your Credit Score
If the loan isn’t an immediate pressing concern, take some time to improve your credit score and creditworthiness to boost your chances at approval. Some steps to take include:
Requesting your credit reports from all three major bureaus and reviewing them for any errors. If you find inaccurate negative items, you can dispute them by sending a communication such as an email or letter to the credit bureau in question.
Making good choices for your credit now, including making all your payments on time and paying down any open credit card balances you might have as much as possible.
Improving your debt-to-income ratio. This is how much debt you have compared to how much you make. You can improve it by paying down some of your debt, finding ways to make more reportable income or both.
Modify Your Loan Request
Try to get a loan for less money. The smaller the loan, the smaller the risk for the lender, and many might be willing to give you a chance for a lower amount than you originally wanted.
Get a Secured Loan
A secured loan is one that you back with collateral, typically in the form of a physical asset, like a car or a house. If you ever fail to pay back the loan, the lender can put a lien on the collateral. The benefits of this type of loan are that they can be fairly easy to get and typically designed to help you improve your credit, which means the lender probably reports to all three major credit bureaus.
There are a couple of downsides to this option. First, you pay interest, so the loan does cost you money. Second, you risk losing ownership of a physical asset, which could cause you even more problems in the long run if you can’t make your payments.
Additional Tips for Getting a Student Loan with No Cosigner
All of the above listed tips can apply when you’re trying to get a student loan as well—particularly a private student loan. But here are a few more tips that are specific to student loans.
Apply for Federal Loans
The Free Application for Federal Student Aid process doesn’t take credit into account when considering students for financial aid. You can potentially get direct subsidized loans, direct unsubsidized loans, direct PLUS loans or parent PLUS loans via this process, all without a credit check.
Build Your Credit Profile in Other Ways
If you don’t qualify for federal loans and want to see private student loan options, find ways to build your credit profile before you apply if possible. For example, you can:
Apply for a secure credit card or no-credit credit card and use the account responsibly. Make sure the credit card you get reports to all major credit bureaus.
Get added as an approved user on someone else’s credit card. Make sure the card in question reports credit information for approved users and that the person who adds you to their account uses their credit cards responsibly.
Consider signing up for a product that allows your rent and utility payments to be reported to the credit bureaus to help you build positive payment history. RentReporters and Experian RentBureau are just two options.
Find the Best Loan for You
Many loan options exist, and many lenders specialize in credit for people who are building or rebuilding their credit histories. There’s a good chance you can find something that suits your needs by following the steps above. Alternatively, you can get a cosigner now and refinance the loan in the future when your credit is stronger.
Some loans also come with options for having the cosigner released after a sufficient period of timely payments and responsible account management. No matter your financial standing, it’s a good idea to start by looking at your credit report whenever you plan to apply for a loan.
If you find questionable information that could hamper your chances at approval, consider working with Lexington Law for professional credit repair.
Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.
Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
College is a place for learning new things, preparing for a career, expanding one’s point of view, making new friends, and, odds are, partying. But putting more emphasis on a good time than on academics can lead to bad grades and worse.
One way that students can ensure they thrive in school is a no-brainer: to study.
Self-discipline is the key, and self-awareness is a first step in improving self-control. You can try to recognize and avoid temptation, either by steering clear of it or distracting yourself from it.
For students who could use some help, here are study tips for college they can try.
Get Enough Sleep
fatty fish that contain omega 3s , dark chocolate, blueberries, pumpkin seeds, nuts, eggs, oranges, and green tea, according to Healthline.
Drinking water and tea instead of soda and sugary fruit juices is also a good idea.
Get a Study Partner
A good study partner can hold you accountable as well as keep you focused.
If students have a tough time sitting down and reading from a book or computer all night, learning with a study partner may be easier and ensure that the information actually sticks.
Find a Quiet Space
Many people are unable to concentrate when they’re in a noisy environment. Unfortunately, a college dorm room can be loud because it’s where social gatherings often take place. Plus, there are so many students crammed into one area, nobody has any personal space. That’s why the hunt for a quiet study space is advised.
Quiet spaces on campus could include a library, where students might be able to reserve a private room; a secluded place outside; the campus cafe when it’s not busy; or an empty classroom.
If students have a car, they can drive off campus to a park, uncrowded eatery, or public library.
Put on Some Focus Music
Listening to music is one of the best study tips for college students. As long as the music isn’t distracting, students can log on to Spotify, Pandora, or YouTube and find focus music for free.
According to research cited by Business Insider, the best types of focus music include nature sounds, songs without lyrics, songs played at medium volume, and songs with a specific tempo.
Students can also listen to their favorite upbeat bands that make them excited, as it may help them study and get their work done faster.
Don’t Wait Until the Last Minute
Practitioners of the fine art of procrastination often pay a price.
Procrastination may lead to bad grades , higher levels of stress, and negative feelings, Psych Central notes. Procrastinators are likely to not have a great study session because they are rushed.
To stop postponing the inevitable, students can put reminders on their phones and notepads that tell them when to study and how to minimize stress before a test.
A study partner can help put feet to the fire. If students procrastinate over and over again, perhaps it’s a sign that they are not interested in their studies and may want to pursue a different major.
Procrastinating may also be a sign of ADHD, so students could make an appointment with their doctor to see if that’s the case and if there is treatment available.
If students’ papers are scattered everywhere, they don’t know where their important books or files are, or they forget when their tests are scheduled, they could use a few simple tips to get everything in order.
They can set up a Google Calendar and put every test, class, and appointment in there. They can set reminders that will show up on their computer or phone when they need to study.
They could also clean their room at least once a week, filing papers in folders, putting books in a neat pile, and storing backpacks, clothes, and other items in closets. Students could also purchase storage systems from places like IKEA and the Container Store so they have a place for everything.
They can also create ongoing to-do lists and check off each task as they complete it. The night before they go to class or in for a test, they can organize their backpack and put everything they need into it instead of rushing the morning of the test.
Shut Out Distractions
The noise in a dorm room or on a college campus can be distracting. Social media, text messages, and emails also take focus away from studying.
To buckle down, students could log out of social media and email and put their phones on do not disturb, only allowing emergency contacts to reach them.
If they are addicted to their phones or social media, they can install apps like SPACE, QualityTime, and Flipd that turn off distractions and track how much time they’re spending on their phones.
Put Together a Study Schedule
Studying isn’t just going to happen. That’s why one of the most important study tips is to put together a study schedule that is realistic.
For instance, if students like to go to bed at 2 a.m., they can’t plan to study at 6 a.m. the day they have a test because they’ll be exhausted. Instead, they can plan to study the evening before the test.
They should also schedule a time when they can find a quiet place to study or when their dorm room is going to be less noisy. They will likely not be able to concentrate on a Friday or Saturday night in their dorm because of surrounding shenanigans. They could block out time on a calendar when the dorm is quieter and make sure they stick to it.
Studying for hours without a break could learn to burnout. Instead, pause to walk around, get some fresh air, or grab a glass of water or a healthy snack.
The most productive people focus on intense work for 52 minutes and then take a 17-minute break, a Reader’s Digest article notes.
getting good grades—a stepping stone to a fulfilling career.
Students focusing on their studies are better off not adding worries about paying all of the costs associated with college. After exhausting federal aid, a private student loan from SoFi can come in handy. There are no fees, which some other lenders charge.
Students can easily apply online, with or without a co-signer. Co-signing may help a student qualify for a lower rate and may help their chances of approval.
SoFi also offers private parent student loans. Parents with strong credit and income may find lower rates than they would with federal parent PLUS loans, which involve fees, though the federal loans come with generous deferment and forbearance availability.
Learn more about private student loans with SoFi today.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. SoFi Lending Corp. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed. SoFi Loan Products SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners. Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Parent PLUS Loans | Are They Right for You? – SmartAsset
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Paying for college is a challenge, and rising tuition costs certainly don’t help. According to College Board, the average cost of a four-year private college has increased by more than $3,000 over the last five years. Scholarships, grants and work-study programs can help bridge the gap, but it’s best to have a robust savings to back you up. Since some parents don’t want their child to take on too many loans themselves, the federal government created Parent PLUS loans. They stand out from other programs thanks to a fixed interest rate and flexible repayment options. Here we discuss what exactly a Parent PLUS loan is, how it works and whether you should get one.
Parent PLUS Loans Defined
Let’s start with the basics. A Parent PLUS loan is a federal student loan offered by the U.S. Department of Education Direct Loan program. Unlike other Direct Loans and most student loans in general, Parent PLUS loans are issued to parents rather than students. Also eligible for issue are stepparents, dependent graduate students and other relatives.
Whoever takes out the loan holds the sole legal responsibility for repayments, regardless of personal arrangements. This is very different than a parent cosigning his or her child’s student loan. The maximum PLUS loan amount is the cost of attendance minus any other financial aid received, which could equal tens of thousands of dollars per year. For PLUS loans distributed between July 2018 and July 2019, the interest rate is 7.60%. As such, the decision to get a Parent PLUS loan should not be taken lightly.
Who Should Get a Parent PLUS Loan?
According to the Office of Federal Student Aid, about 3.5 million parents and students have borrowed a collective $83.9 billion using Parent PLUS Loans from the federal government. To qualify for a Parent PLUS loan, you must be the parent of a dependent undergraduate student, dependent graduate student or professional student enrolled at least half-time in a participating college or university.
You and your child must also meet the general eligibility rules for federal student aid, such as proving U.S. citizenship and demonstrating need. Male students must be registered with the Selective Service. As with other Direct PLUS loans, you usually can’t secure a Parent PLUS loan if you have an adverse credit history. The Department of Education won’t approve a borrower with charged-off accounts, accounts in collections or a 90-day delinquent account with a balance of $2,085 or more.
You shouldn’t apply for a Parent PLUS loan just because you qualify. In fact, it’s usually best if a student gets all of the Direct Loans he or she is eligible for first. These loans tend to have lower interest rates and fees. A parent could always help his or her child with student loan repayments, anyway.
You should really only apply for a Parent PLUS loan if your child needs more financial aid than he or she has received from other sources. It’s also important that both students and parents are on the same page about expectations and repayment plans.
Pros of Parent PLUS Loans
Flexible Loan Limits
Identified generally as “cost of attendance minus any other financial aid received,” Parent PLUS loans can be used toward tuition and fees, room and board, books, supplies, equipment, transportation and miscellaneous personal expenses. They do not have the same limits imposed on them as other federal student loans do. This makes Parent PLUS loans a great supplement if you have a mediocre financial aid package. Of course, you should still be cautious not to take on debt you won’t be able to pay back. Our student loan calculator can help you decide how much you should borrow.
Fixed Interest Rate
As with other federal student loans, the interest rate on a Parent PLUS loan stays the same throughout the life of the loan. It won’t alter based on national interest rates, the prime rate or other factors. Every July, the Department of Education sets the Parent PLUS loan interest rate based on that year’s 10-year treasury note. The fixed interest rate makes it easy for borrowers to predict expenses, make both short- and long-term financial goals and set a budget.
Multiple Repayment Options
Parent PLUS loans are eligible for several different repayment plans, one of which should work for you. This flexibility makes them one of the most accommodating programs for funding a college education. Check out your choices below:
Standard Repayment Plan: The most common option, which allows for fixed monthly payments for 10 years.
Graduated Repayment Plan: This starts with small payments that gradually increase over 10 years. In theory, this should coincide with growing income levels.
Extended Repayment Plan: This provides fixed or graduated payments over 25 years, as opposed to 10.
Income-Contingent Repayment: Borrowers pay 20% of their discretionary income or what they’d pay on a 12-year plan, whichever is lower. They also qualify for student loan forgiveness if they still have a balance after 25 years.
Cons of Parent PLUS Loans
Loan Origination Fee
Interest isn’t the only expense you’ll encounter with Parent PLUS loans. There’s also a loan origination fee. The fee amount is a percentage of the loan, and it varies depending on the disbursement date of the loan. For loans after October 1, 2018 but before October 1, 2019, the fee is 4.248% of the loan amount. That means that if you borrow $30,000 using a Parent PLUS loan, you’d pay a fee of $1,274.40.
This fee is proportionately deducted from each loan disbursement, which essentially reduces the amount of money borrowers have to cover education-related costs. Since many private student loans don’t have a fee, it’s worth looking into private options to determine which loan has the lowest borrowing costs.
Relatively High Interest Rate
Currently set at 7.60%, Parent PLUS loans certainly don’t have the lowest rate out there. If you have strong credit and qualify for a better rate, you might consider a different loan that will cost less in the long run. Direct Subsidized Loans currently carry a 5.05% interest rate, while Direct Unsubsidized Loans are at 6.60%. On the other hand, some private lenders have interest rates as low as 2.795%.
Limited Grace Period
Parent PLUS loan repayment normally begins within 60 days of loan disbursement, but borrowers have the option to defer repayment. This will last while their child is still in school and for six months after he or she graduates or if the student drops below a half-time enrollment status. Not only is this much less time than borrowers of other loan programs receive, but interest will also continue to accrue during the deferment period.
How to Apply for a Parent PLUS Loan
If a Parent PLUS loan seems right for you, file the Free Application for Federal Student Aid (FAFSA) at FASFA.ed.gov. Depending on the school’s application process, you will request the loan from StudentLoans.gov or the school’s financial aid office.
If you receive approval for a Parent PLUS loan, you will get a Direct PLUS Loan Master Promissory Note (MPN). You’ll have to review and sign the MPN before sending back. Funds are typically sent straight to the school, but you or your child may receive a check. All of the money must be used for educational and college-related purposes.
Tips for Your College Finances
Every state in the country offers one of more higher education tuition assistance programs called 529 plans. For many prospective college students and their families, this may be one of the best ways to overcome the incredibly high costs of a university degree. What’s better yet is that you can get a plan from any state, not just the one you reside in.
It’s extremely common for financial advisors to have some level of background knowledge in funding for higher education. The SmartAsset financial advisor matching tool can pair you up with as many as three such advisors in your area.
Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz’s articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.