Student Loans Parents

9 min read

Student loans are the best way to pay off student debt

A single mother might have difficulty paying the bills with a minimum-wage job while raising her child. Luckily, a federal government program called Parent PLUS Loan gives parents who need help with their household expenses the opportunity to take out additional loans based on their income. To qualify for the loan, you must demonstrate how much money you’re spending on your student loan payment each month. You then apply for the Parent PLUS loan online and receive approval after filling out a short application. After the loan is approved, you submit an enrollment agreement (which requires signing before receiving any funds) and make monthly payments until the loan is paid off. Your lender may require a cosigner if you don’t already have a good credit score. Depending on the type of loan you get, you may be able to defer your repayment for several years. Once you start making payments, interest accrues at variable rates tied to LIBOR, plus 2.5 percent annually. If you decide not to finish repaying your student loan, you may end up paying more than if you had never taken out the loan. However, the lower interest rate means you won’t owe quite as much as if you took out a private loan. Private loans offer variable interest rates ranging from 4.41 percent to 8.25 percent. Repayments begin after 12 months and may vary depending on your original debt amount and whether you’re in default. A private loan may also come with origination fees—upfront costs that lenders charge for providing the loan. These fees range from a few hundred dollars to several thousand dollars. In some cases, borrowers can avoid them by taking out a no-interest loan, which comes with standard terms and conditions. While these loans aren’t guaranteed by the U.S. Department of Education, they do allow you to defer repayment and reduce your total debt.

How much would you spend on a college education?

For families looking to send their children to school, there are two major types of options to consider. Public universities are open to anyone regardless of educational background; however, tuition and fees tend to be higher compared to private colleges and universities. Private schools are often located in urban areas and cater to people with higher incomes. Tuition ranges between $10,000 and $80,000 per year. Students can expect to pay around $20,000 over four years for public universities and $40,000 for private institutions. Because tuition costs vary widely, students should always research where they want to go to school and what they plan to study before enrolling. Parents also need to compare private schools and public universities to understand what degree programs are offered, graduation requirements, and average salaries once graduates enter the workforce. There are numerous scholarships and grants available to students, so it’s important to search for financial aid opportunities early.

Should I apply for both a parent and student loan?

Parents who are facing financial

Student Loans Parents

*Disclaimer: I don’t have any loans. If you do, please apply to schools that don’t require student loans.

In recent years, many students seek out student loans to help pay their education costs. While some parents feel that student loan debt is necessary due to a high price tag on college tuition, others do not agree. Many people believe that there should be no need for student loans since they would rather invest in things that will benefit them later on in life instead of paying off interest. When taking out loans, the government expects you to take out a certain amount of dollars each month until you pay back everything you borrowed. However, many people feel uncomfortable committing to these payments since they know they may not have the money to repay the entire amount. Since the economy was hit hard after the recession, many people had trouble finding jobs, which means that they were unable to make the required monthly payments. Because of this, many of these borrowers ended up being late on payments and having their loans become delinquent. Because of this, the government collects fees and fines from these individuals just to keep track of them. Nowadays, many universities have started offering free tuition options to those who cannot afford to pay for school. In order to qualify for financial aid, students must maintain a specific GPA while attending classes. Also, private foundations and other organizations have been created to provide grants to low-income families who want to send their children to school. Even though these programs are great, they do not cover the full cost of tuition, and they often don’t offer enough funding to cover books, supplies, and housing. Instead, parents looking to help their kids get an education should consider financing their child’s schooling through a personal loan. These types of loans are offered by banks and credit unions, and they allow you to borrow from anywhere between $500-$20,000 depending on what program you choose. You then pay back the funds over a set period of time, and you can even finance your child’s education without incurring interest. If you’re interested in applying for a personal loan, check out our article about how to get a car loan!

Student Loans Parents

You parents may not know how much money they spent on their children’s education. But I bet you have some idea of what you spent. However, many students don’t realize just how much student loans cost them. And even if they do, they still want to borrow money. The average student loan debt load for graduates is now around $35,000.

But here’s the thing: Student loans aren’t free. In fact, they’re expensive. That means that most people who take out student loans — including parents — end up paying back a lot more than they borrowed. Which means that they’ve got to work longer than expected after graduation to pay off their loans.

And it doesn’t stop there. As they try to get ahead financially, they often find themselves over-leveraged. So they borrow even more money to make ends meet. And once again, they end up paying way more than they borrowed.

So where does it go wrong? Let’s start with the basics. Students borrow money either through grants, scholarships, and federal loans (e.g., Stafford and Perkins), or private loans (e.g. PLUS). Each type comes with its own set of rules and fees, but here’s what’s common across all four types of loans:

There’s interest payments. Depending on the type of loan, interest rates range between 4% to 6%.

At least half of all borrowers default within five years of repayment.

Borrowers pay fees to apply for the loan. These can range anywhere from $50 to $200 per application.

Now let’s look at the costs associated with each major type of loan.

Federal Loans

The government charges borrowers a fixed rate of interest for these loans. The rates vary depending on the type of loan. For example, a Federal Direct Loan carries a subsidized interest rate of 2.8%, while a Federal Consolidation loan has an interest rate of 8.25%.

Private Loans

Borrowers pay variable rates for private loans that fluctuate according to market forces. Private lenders charge higher interest rates than the government does, but they lower those rates whenever borrowers qualify for a low-interest period. A good borrower could save hundreds of dollars over the life of the loan.

Grants

There are two types of grants: need-based and merit-based. Need-based grants require applicants to prove financial need before receiving funding. Merit-based grants are awarded based on academic achievement, leadership skills, community service, and other factors. Grants are often funded by foundations, corporations, or philanthropists who believe in the importance of education and want to encourage others to pursue their goals.

Student Loans Parents

Parental Support

Parents want what’s best for their children. However, they may not understand how much responsibility parents have to make sure their children succeed financially. In addition, many parents do not realize that financial aid programs are not always enough to cover tuition costs. Therefore, students should consider obtaining scholarships. Scholarships can help pay for college while at the same time helping one’s family out financially. In order to qualify for a scholarship, students need to complete certain requirements first. First, find out if you meet the eligibility qualifications for any scholarships. Then, apply for them. Most scholarships require students to submit applications early and often. Also, remember to keep track of deadlines and follow instructions carefully. All these steps will ensure that you get the scholarship money you deserve.

Financial Aid Programs

Financial aid programs are designed to help low-income families pay for higher education. These programs can be federal loans, grants, work study jobs, and even parent incentives. Federal student loan programs are offered by the U.S. Department of Education. Grants are obtained from private organizations and sometimes come with specific stipulations. Work study jobs are given to students who receive financial assistance. Lastly, parent incentives are provided to reward outstanding academic achievement. Parents play a significant role in determining whether a child makes it to college or not. If parents do not provide financial assistance, then chances are the child will not either. Therefore, parents should continue to strive to help their children reach success financially.

Private Student Loan Options

Private student loans are debt issued by lenders to individuals to finance their education. Students choose private loans because they can control the interest rate and repayment schedule. Typically, repayment starts after graduation. Private loans can be expensive, and therefore, students should think about saving money before taking out this type of loan. Additionally, students should look into federal student loan options first. Because the federal government guarantees private loans, students may only be responsible for repaying 6% of the amount borrowed. On the other hand, federal loans offer lower rates than private loans. Repayment terms for both types of loans vary from 10 years to 30 years depending on the lender and the borrower. After paying back student loans, some borrowers are able to save money by consolidating their loans.

Student Loans Parents

Parental Support

Parents have always been extremely supportive to their children. Whether they were able to help them get their first job, pay for school supplies, buy them clothes, or even take them out to eat. Most parents want nothing more than to see their child succeed financially and academically. In many cases, parents don’t realize how much financial assistance is provided to their student. Sometimes the loans are not covered by insurance or tuition. Students should never turn down free aid just because their family does not offer any financial support at all.

Financial Aid

Financial aid is money given to a student to cover the cost of tuition, books, fees, and other costs associated with completing education. There are two major types of financial aid: institutional, and federal/state. Institutional financial aid comes directly from the institution itself. This includes grant programs, scholarships, fellowships, and merit-based awards. Federal/State funding is what is referred to as non-need based, and is usually divided into grants and loans. Grants do not need to meet criteria before receiving approval, while loans must meet requirements before being approved. The amount of funds given vary from program to program. Many institutions provide additional forms of financial aid including work study, academic fee waivers, and private donations.

Free Money!

There are certain programs that allow students to receive money without having to spend anything back. These range from Pell Grant type programs to grants for veterans who attend college. Generally speaking, if the student meets the eligibility requirements and does not have to pay back any money borrowed, then he/she receives the money. This would eliminate the possibility of accumulating debt as well as make the student’s future plans easier to complete.

Student Loan Consolidation

Many people use student loan consolidation to save money and ease the burden of paying interest on several different accounts. By consolidating all of these payments under one, single payment, it makes it easier to manage. As long as the consolidated account qualifies for income-based repayment options, the total balance becomes eligible for lower monthly payments. If the person is going into default, it is often best to contact the lender immediately. A good rule of thumb is to consolidate after 180 days of missed payments.

College Savings Plans

College savings plans are a great way to ensure that a student has saved enough money to fund his/her education throughout college. These plans are generally funded by employers matching contributions made by employees at some set percentage. Since the employer matches, the incentive is there to encourage participation. When it comes time to withdraw money for college, the student will have a larger amount available to him/her than if the student had simply taken the money out of the bank.

Refinancing

Refinancing to remove existing student loans from an individual’s credit report is a great way to remove the debt from their credit score. Once the debts are removed, they cannot negatively affect an individual’s credit rating anymore. However, refinancing requires some planning ahead of time. First, the individual needs to know how much remaining debt they have on their current loans and how much they can afford to pay each month. Next, they need to find out whether or not they qualify for any special deals offered by different lenders. Lastly, they need to determine when they plan to refinance. Depending on the timing, the rate may increase slightly, but the results can be worth it.

529 Plan

529 plans are considered tax advantaged investment vehicles that offers families the ability to contribute ptax dollars. Withdrawals are also tax free, and there are no penalties for early withdrawals. This gives families the chance to build up savings for future college expenses. Unlike 401k retirement plans, 529 plans are open to the public.

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