What to Do if You Can't Afford to Put Your Child Through College
Federal vs. Private
There are two types of student loans available: federal student loans administered by the U.S. Department of Education and private student loans offered by private institutions such as banks and credit unions. Your child should fill out the Free Application for Federal Student Aid (FAFSA) to apply for financial aid, including federal student loans. Federal student loans come with flexible repayment options but there are limits to how much you can borrow.
Private student loans can help cover any additional costs not covered by savings, grants, scholarships and federal student loans. Typically, there are fewer repayment options than federal student loans; however, private student loans can ensure students have the funding they need to cover all of their education expenses. On the plus side, many private loans tend to have no origination fees, whereas most federal student loans do.
Who Should Take Out Loans?
Taking on federal student loans is a way many young people can pay for college without needing a credit check to do so. For many types of federal student loans and most private student loans, the student is the primary borrower.
You may need to cosign for your child to help them qualify for a private student loan, since those are based on credit. Cosigning may also help them get a lower interest rate. Being a cosigner means you are legally responsible for the loan if the borrower doesn’t make payments.
There are some instances where a parent can borrow money for their child's education. For example, parents can apply for a Direct Parent PLUS loan, which allows them to take out a loan in their name to pay for their child's college. To apply, the student must submit the FAFSA and then the parent completes the application for a Parent PLUS loan according to the school's preferred process. Parent PLUS loan borrowers with an adverse credit history may need an endorser.
It's important to note that parents who choose Parent PLUS loans are required to start paying back the loan once it is fully disbursed; however, parents can request a deferment. This differs from other federal student loans where the repayment period typically begins six months after graduation.
While taking out a Parent PLUS loan can seem like a great way to help your child pay for college, the loan is in your name and cannot be transferred to your child unless you refinance through a private lender. You will be responsible for the payment throughout the life of the loan and your child is not legally responsible for any payments. Parent PLUS loans also have higher interest rates and fees than other types of federal student loans. As a parent, it's possible to help your child with student loan repayment in the future and assist them in other ways financially without taking on loans for them solely in your name.
Regardless of which option you choose, it's important to know who is responsible for repaying the loan, as well as understand the interest rates, fees and repayment options. Before deciding, compare the various loan options, their repayment terms, interest rates and eligibility requirements to find the best fit for you.
Talking with Your Child
If you've exhausted all of your resources after your child has applied for grants and scholarships and you still don't have enough for tuition, student loans might be the right option.
In most cases, the student loans will be in the child's name, so it's important to talk about this responsibility with them. Look at the cost of tuition and the various student loan options available. Go over potential monthly payments and discuss how interest might impact the total cost of the loan. Decide together what might be the best option financially for your family.
Sending your child to college is an exciting time. Trying to pay for college, however, can be stressful, especially if you can't afford all of the costs. You should focus on getting scholarships and grants first since they don't have to be paid back. If you still need money for college, then there are several student loan options to help cover any gaps in funding. Using these options can ensure that your child can afford to pursue their college dreams.