Parents: Five important things to consider before getting a loan for your child's education
May 16, 2018
Helping your child pay for education or training beyond high school is a worthwhile and admirable thing to do - unless it puts your own financial security at risk.
For those parents who don't have the financial resources available to pay their child's education, the Direct PLUS Loan for Parents is a possible option. The Direct PLUS Loan is in the parent's name and the parent is responsible for repayment (not the student).
However, before applying the loan, consider the following:
- You, as the parent, are not the one benefitting from the loan - only the student receives a benefit. Granted, some parents may want to invest in the lives of their children, but it only should be done if repayment of the loan won't be a problem.
- The loan could affect your retirement. Will repayment of the student loan force you to contribute less money to your retirement fund or require you to pay on a student loan while living on a limited income?
- The balance could grow if you defer repayment. Repayment begins immediately after the last disbursement of the loan while your child is still in school. You can defer repayment while your child is in school, but interest will accrue and be capitalized when the loans go into repayment, adding to the loan balance.
- Repayment options are limited. Parent loans don't have the same repayment plan options as do loans for students. However, federal parent loans can be consolidated and then some repayment options may be available.
- The loan could impact your credit, and there could be other consequences if you default. Tax refunds and social security payments can be seized for defaulting on a federal loan.
If you think you may have trouble repaying the parent loan, look for other ways to reduce the cost of your child's education. Consider another school with a lower cost of attendance or search for other ways to reduce costs, such as living at home and commuting to campus.