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Dollars At least 20% of college students need some type of loan to help pay for their college education.  This means students often graduate with an unmanageable debt load.  To help out, some parents take out loans themselves.  But which is the better option — student loans or parent loans?  Each has distinct advantages and uses.

Federal student loans have the lowest interest rates and best repayment options, so begin your loan search by checking out this summary page of the different Federal loans available to you.  If you qualify for federal loans, this is your best first choice.  Just be sure to accept only the funds you need, even if you are offered much more.  Parents can always help their children pay off these loans once repayment begins after graduation.

PLUS loans (Parent Loan for Undergraduate Students) are another loan option that comes with low interest rates.  If you are a parent with dependent students attending college at least part-time, and you have a good credit history, you are eligible to receive a PLUS loan.  These loans are not needs-based.  You can borrow up to the total cost of undergraduate education expenses, minus other financial aid already received.  Unlike federal student loans, payment is not deferred until after graduation; instead, your first loan payment will be due about 60 days after the loan is disbursed.  Also unlike federal student loans, PLUS loans require an application fee.

The most expensive option is to take out a private loan.  Both students and parents can take out private loans to cover funding gaps.  Because these loans aren't federally backed, the interest rate will be higher.  You should only consider these loans if you don't qualify for Federal loans.  Students may be able to have their repayment deferred until after graduation.  So which type of loan is the best?  This really comes down to a personal decision.  Ask yourself these questions as you are trying to decide:

  • What level of debt do you feel is manageable for your child to graduate with?
  • How important is it to you that your child takes responsibility for paying student loans?
  • Will you and your child wish to work out a repayment plan to repay you for PLUS loans and other parent loans?
Salliemae.com will help you evaluate loan options.  You can even apply online for loans from this website.


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College Loan Types - College Loan Guide