Choose wisely.

INTRO   |

Student and parent loans are important pieces of the financial aid puzzle for many families, but unlike grants, these awards must be repaid. It's a serious responsibility, but it shouldn't keep you from borrowing altogether. Just approach it like you have everything else in this process — get informed, know your options and weigh the risks. Borrowing responsibly can help you achieve your goal of going to college, while borrowing too much can hurt you in the future, long after college is behind you.

There are a variety of loans available to both students and parents, so read up and decide which ones might work best for you.

TYPES OVERVIEW   |

LOANS (money you have to repay later)

Federal Perkins Loans are made through participating schools to undergraduate, graduate and professional degree students, both full-time and part-time, who demonstrate financial need. These particular loans are repaid to your school.

Stafford Loans are for undergraduate, graduate and professional degree students. You must be enrolled as at least a half-time student to be eligible for a Stafford Loan. Stafford Loans are either subsidized and unsubsidized, meaning the government either pays the interest during school or it doesn't. Financial need is not a requirement to obtain an unsubsidized Stafford Loan, but you are responsible for paying the interest that accrues on unsubsidized Stafford Loans.

PLUS Loans (Direct or FFEL) are loans parents can obtain to help pay the cost of education for their dependent undergraduate children. In addition, graduate and professional degree students may obtain PLUS Loans to help pay for their own education.

Consolidation Loans (Direct or FFEL) allow student or parent borrowers to combine multiple federal education loans into one loan with one monthly payment.

PARENT LOANS

• FEDERAL PLUS LOANS
  

• FEDERAL PLUS LOANS vs. HOME EQUITY LOANS
  

• FEDERAL PLUS LOANS vs. CASHING IN INVESTMENTS
  

Click here to learn more about the loans available to students

FEDERAL PLUS LOANS
Parent Loans for Undergraduate Parents (PLUS)

a fixed-rate loan for parents of dependent undergraduate students enrolled at least half time in an eligible program at an eligible school

TOTAL AWARD:

Your total award will vary, and will be sent directly to your child's school, where the amount will be applied first to tuition, fees, room and board and other school charges. If any funds remain, you will receive the amount as a check unless you authorize that money to be released to your child or credited to your school account.

HOW TO APPLY:

To obtain a Direct PLUS Loan (which must be repaid to the federal government at a fixed rate of 7.9%), you must complete a Direct PLUS Loan application and promissory note that comes from the school's own financial aid office.

To obtain an FFEL PLUS Loan (which must be repaid to a private lender or loan servicer at a fixed rate of 8.5%), you must complete a PLUS Loan application that comes from your child's school, your private lender or your state guaranty agency.

FINE PRINT

You will pay a fee of up to 4% of the loan amount, deducted each time a disbursement is made, in order to help reduce the cost of the loans either by the government or the agency administering the FFEL PLUS Loan program in your state.

Note that you will be required to pass a credit check when you apply for a PLUS Loan, but don't worry if your credit isn't perfect. If a relative or friend passes the check and agrees to endorse the loan, you may still be eligible to receive funds.

For more information about a Direct PLUS Loan, contact the Direct Loan Servicing Center at 800-848-0979, or go to www.dl.ed.gov

For more information about an FFEL PLUS Loan, contact the agency that administers the loan program in your state.

FEDERAL PLUS LOANS vs HOME EQUITY LOANS

You might be considering paying for part of your child's college education through a home equity loan, which features tax-deductible interest. While this can be an attractive option for some, it's worth noting that this loan puts your home in jeopardy if you're unable to pay back the loan.

The U.S. Department of Education suggests you consider these points before taking out a home equity loan instead of a PLUS Loan:

INTEREST CAP :: If your home's equity line of credit has a high interest cap, your loan could get a lot more expensive despite your tax deduction if rates were to rise.
LIQUIDITY :: Taking out a home equity loan to pay for college means that asset is off the table if there's an emergency down the road.
INSURANCE :: While many home equity loans aren't protected for life's unexpected moments, PLUS Loans are fully insured against death, disability and periods of qualifying financial difficulty.

FEDERAL PLUS LOANS vs CASHING IN INVESTMENTS

If you're trying to avoid borrowing money to help pay for your child's college education, you might consider cashing in long-term investments to cover the cost. This can be more expensive in the long run, though, and you may not realize how much it may cost you years from now.

The U.S. Department of Education suggests you consider these points before cashing in investments instead of taking out a PLUS Loan:

RETIREMENT :: For most parents, the tax savings of a retirement plan far outweigh the interest expense of PLUS Loans, so underfunding a tax-deferred retirement account to pay for college is extremely costly.
LIQUIDITY :: Using investments to pay for college means those assets are no longer available for emergencies down the road.