Borrowing: The Parent’s Role

Most families pay for college using some combination of savings, income and financial aid. Financial aid is money you receive to help cover college costs. Some financial aid, like grants and scholarships, doesn’t need to be repaid. Financial aid can also come in the form of loans — money you have to repay. While students are usually the ones who take out student loans, family support in the process can make a big difference.

Get Your Parents Involved

You should involve your family before borrowing money. Your parents may be able help you in the following ways:

• Explaining difficult-to-understand language on financial aid forms
• Discussing which loans to choose and how much to borrow
• Completing their tax returns early

You’ll need your parents’ tax information to fill out the Free Application for Federal Student Aid (FAFSA). Filling out the FAFSA is required for you or your parents to receive federal loans. These loans usually have the best terms, so they’re the ones you want to take out first.

Private Loans

Private loans often have higher interest rates and less favorable terms than government loans. But sometimes private loans are necessary.

Here are some things you should know about private loans:

• Banks and other organizations offer private student loans.
• Most private loans are taken out by students. This means the student is responsible for repaying them.
• Because most students have not established credit (proven that they can repay loans), private loans often require a cosigner with good credit. A cosigner is someone who will take responsibility for repaying the loan if the student does not.

College Loans for Parents

If there is a gap between your financial aid award and the cost of college, your parents may be able to help by taking out a parent loan for educational costs. The most common loan of this sort is the federal Parent Loan for Undergraduate Students (PLUS). Consider a PLUS only if your family has run out of other federal loan options that cost less.

Here are some facts about PLUS:

• The loan can cover the total cost of college (tuition, books and living expenses) minus financial aid.
• It is available no matter how much money your family has.
• The loan has a fixed interest rate, which means that the rate will not change for the life of the loan.
• There are several PLUS repayment plans designed to meet the different needs of borrowers.
• PLUS requires a credit check. If your parents do not have a history of bad credit, they'll have a good chance of being able to borrow a PLUS.
• The PLUS application process starts with completing the Free Application for Federal Student Aid (FAFSA).

This article is intended for informational purposes and is not intended as tax or financial advice.