How to Pay for College Using Loans
When you start thinking about how to pay for college, it can seem a little intimidating at first. Educating yourself is the best way to make the right choice for the future. Parents are often aware of federal loans and private college loans, but there are other financial options that can both pay for your child’s education, and ease the burden on your budget.
The average cost of tuition and fees combined for the 2016-2017 school year at a private college was over $33,000 for private school, and $9,000-$25,000 for public schools, depending on state residents vs out-of-state residents. Given these numbers, let’s take a look at some of the top ways to pay for college.
The Parent Loan for Undergraduate Students (PLUS)
- Proof of financial need is not necessary to qualify. Credit checks, however, are required.
- Rates are fixed and currently 7% for loans with a first disbursement between July 1, 2017 and June 30, 2018.
- PLUS loans offer free insurance, which cancels the debt in the event of death or disablement.
- Pays up to 100% of the cost of attendance, minus other financial aid.
- Repayment plans range from 10-25 years, and payments typically begin within 2 months of final disbursement, but you have the option to defer payments until 6 months after student's graduation or enrollment in school less than half-time.
- Not every applicant qualifies for a PLUS loan, especially if the borrower has an adverse credit history, bankruptcy, or past due bills more than 90 days overdue. In such cases, a co-signer is needed.
- Origination fees of 4.264% of loan amount with a first disbursement made between October 1, 2017 and September 30, 2018.
Federal Direct Loans
- A dependent student whose parent is denied for a PLUS loan may borrow up to the independent student limit.
- Rates are fixed and currently 4.45% for loans with a first disbursement between July 1, 2017 and June 30, 2018.
- Lower origination fees than PLUS loans – 1.066% of loan amount for subsidized and unsubsidized loans with a first disbursement made between October 1, 2017 and September 30, 2018.
- Repayment plans range from 10-25 years, and o payments due until 6 months after graduation or enrollment in school less than half-time.
- Loan amounts are limited by year, ranging from $5,500 in year 1 to $7,500 in year 4 for dependents, and $9,500 in year 1 to $12,500 in year 4 for independents.
Private student loans
- Loan amounts up to 100% of the attendance.
- Some lenders, like Discover Student Loans, offer $0 origination fees and rewards for good grades.
- No FAFSA approval required, unlike federal loans.
- May not require a cosigner. This depends on your credit evaluation. Applying with a creditworthy cosigner may improve your likelihood for loan approval and may lower your interest rate.
- Many private lenders offer a wider range of rates, and rates can be higher than federal loan programs depending on the applicant’s situation. Discover Student Loans, for example, offers fixed rates from 6.24%-12.99% APR and variable rates from 3.87%-11.12% APR.
Home Equity Loans
It’s important to research your options to pay for college
- Since home equity loans (HELs) are secured by your home, rates may be lower. Rates vary by lender, but home equity loans offerd by Discover offers fixed rates from 3.99%-11.99% APR.
- Discover’s home loans has no application, origination, or appraisal fees, and no cash is required at closing.
- With Discover’s home loans, borrow up to $200,000 with loan terms up to 30 years.
- With HEL’s, your home is used as collateral, so be aware of that when choosing to borrow your home equity.