Monthly Features

Parent loans…with a twist!

If a family needs to take out a loan to help pay for the student’s college education, we typically encourage them to start with the student’s federal student loan option, up to $5,500 for the first year of college. The student doesn’t need a co-signer and there are no principal payments until after the student graduates or drops below half-time. And the interest rate is currently 5.05%.

A Home Equity Line Of Credit (HELOC) is another popular source of loan funds given today’s relatively low interest rates. The interest rates currently seem to be, in most cases, lower than the student loan rate above, but it is the parent’s loan and payment on principal and interest start right after you exercise the HELOC.

When it comes to the Parent Loan for Undergraduate Study (PLUS), the interest rate currently is 7.6%. You go into immediate repayment on principal and interest. (You do have the option to delay payments until the student is out of college or drops below half-time, but interest is accumulating unabated.)

If a parent is turned down for credit reasons, usually the student can take out another $4,000 in federal student loan funds. But here’s the twist. If both parents apply independently for a PLUS loan and one is approved and the other is denied, the student can’t get the additional federal student loan money because the application was submitted by a credit worthy parent.

 


Publication Date: September 2018

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