Parent Loans

Parent loans are a common option in today's high cost college marketplace. However, this should be done with great caution. Here's why...

Parent loans - successful students

  • Does your student demonstrate college success? With over 40% of college students NOT graduating be sure your investment is wise. Are they demonstrating independent maturity? Are they showing a track record of at least 3.0 GPA or better in the college classroom?
  • Start with student loans. Helping your student be accountable for a responsible level of college debt helps increase their chances of success.
  • Co-signing is a serious commitment. Be very cautious about co-signing student related loans. For reasons beyond your student's control (illness, difficulty finding a job, etc.) YOU are on the hook to repay if your student is unwilling or unable to.
  • Have you established a debt ceiling? The same slippery slope that traps students in high levels of student debt can do the same to parents. Common pitfalls for parents include:

    • not forecasting the high annual increases of college costs
    • overspending on college for the first child which results in over borrowing for the second and third child in order to be "fair".

parent loan information - railroad intersection

Parent Loan Options

Keeping in mind the way the FAFSA is calculated here are the most attractive options:

  1. Consider a home equity loan or line of credit for college costs. In fact, putting college savings toward reducing your primary residence mortgage principal makes sense three ways:
    • First, it accelerates your mortgage repayment and reduces your overall interest costs.
    • Secondly, it maximizes your EFC from the FAFSA calculation as your home equity position is not included in the calculations.
    • Third, under present federal tax law any interest you would pay on any money taken out is tax deductible. Interest from educational loans from all other sources is not tax deductible.
    • The downside of course is to watch interest rate trends closely as home equity loan products are typically variable and not fixed. Also it is very important not to let your outstanding debt become too high when adding in your first mortgage principal. A common rule of thumb is to keep your total debt to equity at a maximum of 80% or less. (Total Debt/Estimated Home Market Price)

  2. Federal Plus Loans The parent can borrow up to the total costs of education less any financial aid awards. The downside is that interest rates are variable (to a maximum of 9%) and repayment must begin within 60 days of disbursement.
  3. Private Education Loans Interest rates are typically much higher for these loans. Extreme caution must be applied in doing comparison shopping of terms and careful budgeting of the repayment terms over time.
Deferments are an appealing alternative especially when multiple students are in college at the same time. However, deferments are like a ticking time bomb. The interest is still accruing while the student is in school. The means that the principal to repay will be much higher upon graduation. Be sure to pay at least the interest if not more during your student's time in college.

parent loan information - parents with laptop

Featured Links

CAPlus Loan Resources
Federal Direct Parent Loans

parent loan information - girl trapped in cord

Parent Loan Options to Avoid

"You can borrow for college but you can't borrow for retirement."

That may be true but in today's college loan environment you can easily over borrow for college and drastically impact your retirement goals.

Avoiding these parent loan options will keep your retirement goals on track...

  • 401(k) or pension loans. These loan amounts reduce the amount of principal working for your retirement future.
  • IRA hardship withdrawals. For the same reason these reduce your future earnings potential for retirement. If not handled properly can result in hardship penalties by the IRS.
  • Credit cards. Studies show that both students and parents use credit cards to pay tuition and college related bills. This can quickly spiral to an out of control balance. Failure to repay can negatively impact your credit scores.

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What Clients Are Saying

“…without your involvement, we never would have thought to approach the college directly…. We got the documentation together to obtain residency, created letters to send and were granted residency which translated to $20,000 in savings.

THEN we went back and said, 'don’t take away her out-of-state scholarship just because she is now a resident' and got OSU to maintain the $7,000 scholarship".

"We would like to express our appreciation for the service that our daughter received.

She is our first child to go through the college application process, and it was very intimidating for our whole family. You were able to create a clear, understandable path for our daughter.

As a result of all of this hard work, our daughter was offered three presidential scholarships at various colleges, including a full tuition scholarship to a private college.

Thanks again, and we look forward to working with you on our son's upcoming college search."

"HWS presented an above average financial aid award, however, it included some work study. With your guidance, I went back and asked that the work study be converted to either grant or scholarship to relieve the financial burden while allowing my daughter to focus on academics.

They came back with the conversion AND continued to keep her eligible for an equal amount of money through work study."