The Different Types Of College Loans For Parents

There are many ways that parents can get loans to pay for their children to go to college. Understanding the different loan options is the key to getting the best loan at the best price.

Paying for college can be an expensive proposition. Even the cheapest college and universities in the United States are not "cheap" by the standards of most people. And for most families, writing a check for the full amount of the tuition is far from a viable option.

Student loans are the way that is usually suggested for students who need to pay for college. However, many parents do not want to see their children graduate from college with tens of thousands of dollars of debt. For these families, there are many options that parents can take advantage of to pay for their children's education.

PLUS Loans

Parent Loans for Undergraduate Students (PLUS) allow parents to borrow money for the cost of tuition for a college or university. The loan amount is determined by the cost of the college that the student is attending. This includes the cost of room and board, supplies, and lab fees. These loans are also not based on need, but they are based on the credit history of the parents.

For parents who receive these loans, repayment begins 60 days after the funds are disbursed to the school. The interest rate on PLUS loans is adjusted annually. However, the interest rate is low, and is capped at 9%. In addition, to continue receiving these loans, the student must be at least a half-time student.

Private Loans

Another option that is available for parents is a private loan through a bank or lending institution. For parents with good credit histories, and an established relationship with a bank, this can be a great way to get a loan with a good interest rate.

As was said, however, these are typically based on the credit histories of the parents. For parents with questionable credit, or parents who have a high debt to income ratio, getting these loans may be a problem.

IRA Withdrawal

For parents who have built up a nice savings in their retirement plan, borrowing against an IRA may be an option. Usually, taking money from an IRA before age 59 ½ incurs a 10% penalty, plus the money is taxed at the federal and state level. However, if the money is borrowed for higher education expenses, the 10% penalty is waived. However, the loan will still be a taxable event.

Home Equity Loan

For parent who own and have a substantial amount of equity in their home, taking out a home equity loan may be an option to pay for higher education. Of course, the disadvantage to a home equity loan, regardless of the reason for taking the loan, is that the home becomes collateral for the loan. In the event that the loan cannot be repaid, the home can be in jeopardy.

In the end, for parents who is thinking about taking out a loan to pay for their child's education, doing your homework is the key. Investigate all options available before making a decision that you will have to live with for years to come.

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