A Parent's Guide to Student Loan Options, Co-Signing & Having Conversations About Paying the Bills

As the cost of college continues to rise, students are having to look for more avenues to help pay for school. Throughout this process, they’ll be turning to their parents and guardians for guidance in helping them make the smartest decisions when it comes to borrowing money now—and paying off those debts later. It’s crucial that parents and guardians have a clear vision of the level of involvement they’ll have in helping their children take out and pay off loans before having these discussions.

Some may choose to co-sign on their child’s loans and cover the entirety of their college expenses. Others may choose to refrain from co-signing, but offer to pay for half of the tuition. And some may be willing to offer their support and guidance along the way, without taking on any of the financial responsibility. It’s important that your child is completely clear on where you stand—and that can only happen if you are!

Therefore, as a parent or guardian, you need to fully understand your options. Here’s a brief overview of the types of student loans available to you and your (soon-to-be) college student.

Federal Student Loans

Federal student loans are offered through the U.S Department of Education. A student can qualify for federal options when they file the Free Application for Federal Student Aid (FAFSA).* They offer two main types of loans, subsidized and unsubsidized. Which one a student receives is based on their financial need. So what’s the difference?

• Subsidized loans are student loans that will not accrue interest while the student attends school. That is, the U.S. Department of Education pays the interest until the student graduates, falls below half time, or stops attending school.
• Unsubsidized student loans do accrue interest while the student is in school, and the student will be responsible for paying that interest.

*We can help parents and students file the FAFSA! Click here to learn more.

Private Student Loans

Private student loans are loans that come through private institutions like banks, credit unions, and other financial institutions. Private student loans have terms, conditions, and rates. A majority of the time, when students apply for private student loans, they’ll need a co-signer. This could be because they haven’t had the time to establish their credit, don’t have a lengthy job history, or don’t have enough monthly income—all of which play a large piece in private lenders’ decisions to loan out the money or not. | Learn more.

Parent PLUS Loans

Parent PLUS loans are offered through the U.S. Department of Education. There are other versions of parent-only loans, however, they’re more comparable to a private student loan. The Parent PLUS loan offered by the U.S. Department of Education is a student loan taken out in the parent’s name only—the student won’t be tied to it at all. | Learn more.

So, what are your next steps?

Parents, if your student is going to need help paying for school, they’re going to look for you to help. This is where honesty and openness plays a key role. As you research the above options, consider the level of involvement you want to have in helping your student pay for their higher education—including whether or not you’re willing to co-sign on their loans.

The sooner you can have clear, concrete conversations about how your child’s tuition will be paid with them, the better prepared you’ll all be as they enter their college career—and even more so, for their life post-graduation.

Whether or not you decide to co-sign or offer financial support doesn’t make you a better or worse parent—but being open and honest, and setting expectations from the get-go, can help set your child up for long-term success.| Learn more about co-signing here.

We know there’s a lot to consider when it comes to deciding how involved you want to be, and that it’s not an easy choice. If you want to hear from a parent who has an interesting point of view, we highly suggest checking out this real-life story. 

Questions?

Questions about the options you and your student have when it comes to paying for college? Want to discuss how your decisions as a parent may affect your child’s next steps in terms of borrowing money for school? Our Youth & College Support Team is always happy to have those conversations! Give us a call at 260.399.8265 or email us to get started.