I understand it is incredibly tough to go through the process of helping your kids not only pick a school, but also find ways to finance college. It can be completely overwhelming. And if you’re feeling stressed, you are not alone.
According to Sallie Mae’s study, How America Pays for College, in the 2017-2018 academic years, parent’s paid for 34% of college costs from income and savings. On top of that, 53% of families needed to borrow money to help. And at the end of 2018, parents held $89.8 billion in Federal Parent PLUS loan debt according the U.S. Department of Education’s office of Federal Student Aid.
When it comes to helping your child, there are a lot of things to consider. When you complete the Free Application for Federal Student Aid (FAFSA®), the expected family contribution calculation assumes that a parent will be contributing to their dependent (for FAFSA purposes) student’s higher education costs, and therefore requires parental information to be provided (unless the student is determined to be an independent student for FAFSA purposes). Even if the expected family contribution includes parental information, that does not require a parent to contribute to their child’s education at all.
As a parent, the amount you contribute, and/or borrow to help your kids pay for college is your decision. And every family handles this cost differently. The most important thing to do as a parent? Let your child know your ability/willingness to assist in paying for college. The earlier they understand that, the earlier they can start making plans to help pay for their own higher education.
As a parent, you do have some options to help contribute to your child’s education.
Being able to use cash or savings from a college savings plan (like a 529 plan) would likely have required you to start saving over time. If you’re the parent of a college-aged kid, and you have done this, that is fantastic! Now it’s time to determine the best way to use those funds to help cover those college costs.
Federal Parent PLUS loans are part of the federal student loan program, and are available to the parents of undergraduate, dependent students. This type of loan will require you to complete an additional application on StudentLoans.gov (just log into your account with your FSA ID). This federal loan will require a credit check to make sure you do not have adverse credit. If you have adverse credit, you would need to either find a cosigner or file a successful extenuating circumstances appeal.
The Federal Parent PLUS loans does come with a set origination fee and set fixed interest rate. Both the origination fee and interest rate are non-negotiable and not based on the strength of your credit (everyone borrowing a loan at the same time will have the same interest rate and fees). You can borrow up to your child’s cost of attendance (of their chosen school) minus any other aid received.
Think carefully before taking out a federal loan. As a parent, you have the option to borrow a private parent student loan in order to help your child(ren) pay for college. This type of loan is available to borrowers with strong credit, and will require a credit check from your chosen lender (yes, you get to pick the lender you want to work with). You may need to apply with a cosigner to qualify. In contrast to the federal loan option, private loans offer many competitive, and cost saving, features. If you’re deemed to be eligible for a private parent student loan, your lender may offer zero to no loan fees and a competitive interest rate based on your credit. You can borrow up to your child’s cost of attendance (of their chosen school) minus any other aid received.
Because this is not a federal student loan, this loan may not have the same type of repayment plans, opportunities for forgiveness, or other federal benefits provided with a federal student loan.
As a parent, you may feel like much of the responsibility to pay for college is on your shoulders. Although you can offer to help, keep in mind that this is your child’s higher education. Here are three ways you can help contribute to your son or daughter’s success:
Scholarships, no matter the amount, can really add up. But keep in mind, finding these can take some time and effort. The beauty of scholarships is you can apply for these before your child even starts looking at colleges, during the college application process, and while in college. Although each individual scholarship may have a deadline, there aren’t any deadlines on when and how often your child can apply!
Some great places to look:
It’s your child’s education, so it’s okay to feel like they should be contributing. If they are of age, you may want to encourage them to take on a part-time job. And also, set some rules on how the money they earn should be used for personal expenses, and saving for college (for example, $50 of every paycheck should go into the college account).
This one may seem obvious, but sometimes it’s easy to forget to put a priority on saving money. Your child may be receiving high school graduation, birthday, or holiday gifts, and it’s important for them to use this money wisely. Just like money earned from a part-time job, money received as gifts should also have a rule on how much (either a dollar amount or percentage) gets put in the college savings account.
When it comes to helping your child pay for college, the amount you want to contribute is your decision. Not all families are able to fund their child’s education, and that’s okay. Just remember to have those conversations with your child early on, so they know what to expect and to help them plan.
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