Over the past 10 years, college tuition has been increasing by about 2 percent to 3 percent per year, after adjusting for inflation, according to a study by the College Board. Unfortunately, financial aid packages have not been able to keep pace with the increased cost of college.
As a result, many parents have been looking to private parent student loans to make up the difference in college expenses.
How to Apply for Parent Private Student Loans
Applying for a parent private student loan is a relatively easy process once you have gathered all of the necessary information. Lenders all have online applications, so you can complete the process at a time and place that are convenient for you.
Before you begin the application, make sure you have the information that the lender is most likely to request about the student and college:
- The student's Social Security Number
- The college or university, location, program, and anticipated graduation date
- The cost of attendance and estimated financial aid the student is already receiving
When to Apply for a Private Student Loan
Unlike filing the Free Application for Federal Student Aid (FAFSA) for federal student loans, private student loans don’t have an application due date. It can take a few weeks for a lender to process the application. So you don’t want to wait until the semester is about to start before filling out an application.
You can fill out the application as soon as the student has been accepted into the university. In some cases, the decision about whether or not a student can accept an offer from a particular college is dependent upon the family’s ability to obtain additional financial support in the form of a parent private student loan.
If the private student loan is needed to make an acceptance decision, parents should fill out the loan application as soon as possible. You can always choose whether or not to accept the loan offer later, but you can’t speed up the process to meet a registration deadline.
Private Student Loan Traps Parents Should Watch For
Parents need to watch out for a few traps before taking out a parent private student loan. First of all, consider the financial impact of the loan not just for the student but also for the parent. You could be paying on those loans for up to 10 years after your child graduates from college.
That debt obligation can impact your ability to save for your own retirement and can force you to delay retirement altogether. Parents should consider whether they are truly willing and able to accept that burden.
The availability of private student loan funding can put both students and parents into situations where they borrow too much today because it is offered but don’t consider the repayment burden that will hit in a few years. It is easy to over-borrow now and pay the price later.
Parents and students alike are drawn in by the offer to borrow large amounts of money at a low interest rate when they don’t have to make any payments for a few years. The next year, they get a similar offer and accept that, too. Over the course of four years, those loans plus accrued interest can quickly get out of hand.
This problem is multiplied if the parents are paying for multiple children to attend college at the same time. Parents want their children to be able to attend their dream college, but they still need to be smart and set a good example of financial responsibility.
Try to use federal loans and student loans first before resorting to a parent private student loan. Then, if possible, borrow the smallest amount possible rather than automatically taking the maximum loan amount offered by a lender.
Private Student Loans for Parents
Sallie Mae offers parent student loans varying from $1,000 up to the school’s certified cost of attendance. The loans come with a fixed interest rate or a variable interest rate.
Parents do need to make payments on their loan while the student is in college, but they can choose to pay interest only for up to 48 months of college attendance. Alternatively, parents can minimize the total effective cost of borrowing by beginning to make payments of both interest and principal while the child is still in college.
Private parent student loans at Citizen’s Bank have no application, origination, or disbursement fees. Parents can choose between a five-year and 10-year repayment term with a fixed interest rate.
The minimum loan amount is $1,000, and Citizen’s Bank will lend up to $90,000 for undergraduate degrees. Parents can choose to pay only interest while the student is in school or begin making immediate principal and interest payments.
Loans from College Ave start at $2,000 and go up to the full cost of college attendance, plus up to $2,500 for added education expenses. Parents can choose either a fixed interest rate or variable interest rate. There are no loan origination fees, and borrowers can choose a flexible repayment term and plan that is right for them.