Home LoansStudent Loans Students Loan

Students Loan

By: EconomyWatch Content Date: 1 December 2009

About The Author

Follow The Money

Paying for college education is a grave concern for most parents. Although there are several types of students loan that enable financially distressed students fund their education, parents are often hesitant to place a high burden of debt on their children. Under such circumstances, a parent can apply for a special students loan intended for parents.

Students Loan: Federal PLUS Loan for Parents

If a student is a dependant, his/her parent can qualify for a PLUS (Parent Loans for Undergraduate Students) Loan. This federal program enables a parent to borrow money for tuition expenses, after deducting any scholarship or grants the child has received. Unlike other federal student loans, the PLUS Loan for parents is not based on financial need. Instead, it takes into consideration a parent’s credit history. However, a parent with a poor credit history may qualify for a PLUS Loan, if s/he can introduce a financially sound co-signer.

Repaying Students Loan: Considerations for Parents

PLUS Loan borrowers are liable for repaying the instant funds are disbursed by the lender to the college or university. Similar to standard student loans, borrowers of PLUS Loans can choose from four student loan repayment options:

· Standard: Fixed interest rate for specific repayment period.

· Extended: Fixed interest rate for longer repayment period.

· Graduated: Low initial interest rate that increases gradually at predetermined intervals.

· Income sensitive: Interest rate varies according to a rise/fall in the income level.

Additionally, when faced with financial challenges, which impede loan repayment, a PLUS Loan borrower may qualify for relief options, such as forbearance, loan deferment and consolidation.

Alternatives to Students Loan for Parents

If a parent fails to qualify for federal PLUS Loans, s/he can consider the following education financing alternatives:

· IRA (Individual Retirement Account) withdrawal: Parents who have created substantial savings in their retirement account may consider borrowing against an IRA. Generally, withdrawing money from an IRA before turning 60 accompanies a penalty of 10%, which is also taxed by the federal and state governments. However, when the money withdrawn is used for funding a child’s higher education, the penalty is waived, although the amount continues to be taxable.

· Home equity loan: Parents who have substantial equity in their home may consider applying for a home equity loan to fund higher education. Although one may be able to acquire a lower interest rate on a home equity loan than a private student loan, the risk of using a home as collateral is great.

Additionally, a parent may also consider applying for a private student loan. Parents with a sound credit history can easily qualify for a good interest rate even on a private education loan.