Although this type of loan is a useful financial tool for many parents, it isn’t necessarily the best option for everyone. Parent student loans are a type of loan that can help parents pay for their children’s education.
Parents need to know about the type of education loan, the different repayment options to ensure they can choose the right one for their children.
Here are some facts about parent student loans you need to know.
How Do Parent Loans Work?
A parent-student loan works a lot like a student loan. The only difference is that the borrower is a dependent rather than an independent student. The parent loan lets dependents borrow money to help pay for college expenses.
To qualify for a parent loan, you need a co-signer with an established credit history and income. If your co-signer doesn’t meet these criteria, you might be able to take out an alternative federal student loan instead of one from private lenders or banks.
What Are the Different Types of Parent Student Loans?
Parents can loan money to their children for a certain period. There are different types of parent-student loans:
1. Parent PLUS loans: These are the most popular parent student loans because they have a high interest rate and offer a low cap on borrowing.
2. Parent PLUS private education loans: These provide funding for private colleges or universities, but they do not have a low cap on borrowing.
3. Parent PLUS direct loan: These only allow you to borrow up to the total cost of attendance minus any financial assistance offered by your college or university, but they do not have a high interest rate and offer a low cap on borrowing.
How Can To Apply for a Parent Student Loan?
To apply for a parent loan, you need to fill out the FAFSA. Fill out the FAFSA application, which is available on the Federal Student Aid website.
The FAFSA form is just one part of the process to get a parent loan for your child. The other thing you need to do is find out if your child qualifies for financial aid and if your child is eligible for any grants or scholarships that will cover his education costs so that you won’t have to take out a loan in his name.
What Happens to Non-Repayment of Loan?
If you’re unable to make your loan payments, your loan servicer is there to help you. You can contact the office, and he’ll conduct an emergency review and see if the office can work something out.
If your servicer sees your loan is no longer in good standing, he can contact you with some options for reducing this risk.
For example, you may want to change your monthly repayment plan or request a temporary loan deferment or forbearance so that you can stop payments for a short time.
Types of Parent Loan Repayment Plans
The following are the most common types of student loan repayment plans:
1) Standard repayment plan: a borrower pays a certain amount for each month, and it takes about ten years to repay the loans.
2) Graduated repayment plan: If you graduate from this plan, you’ll start by paying a low amount every month. In two years, they’ll increase to a pre-defined limit.
3) Extended repayment plan: monthly payments are the same for up to 25 years, but interest charges can be higher.
4) Income-based repayment plan: monthly payments are calculated based on income and family size; this program is available for new loans issued after October 1, 2014.
5) Income-contingent or pay-as-you-earn (PAYE): this is the newest version of the income-based student loan repayment plan with changes to how much money you have to repay each month, depending on your income.
Whether you’re a student borrowing money or your parent is considering borrowing to finance your education, you should go through the facts about parent student loans you need to know.