What are the big differences between parent loans (particularly Parent Plus loans) and student loans? As Hesperian wealth manager Eric Figueroa describes in a recent quote on MoneyGeek, higher origination fees, much higher interest rates, no transferability, limited alternative repayment plans, and no paths to forgiveness.
Might private parent loans be a better option? Maybe. Interest rates on Parent Plus loans are so high because everyone gets the same rate after meeting a low bar of creditworthiness. You might get a lower rate with a private loan if your financials and credit are strong, but …
Usually, if you’re even considering taking out parent loans, it means the investment in college you and your student are planning to make is very high and may not make economic sense.
If we were helping you analyze your student’s education options and fund the cost of college, we’d ideally try to help you avoid debt entirely. But our next goal would be to avoid borrowing more than the Direct student loan limits (that means no parent loans). Or at least keep the total debt load at or below your student’s expected salary in their first year out of college for their major. The return on investment on a larger college debt load is rarely attractive. Click here to learn more about our advanced college planning process.
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