đź“ťStudent loans 101: Your guide to Federal Student vs Federal Parent vs Private
With federal student, federal parent and private student loans all on the table as college funding sources, how do you know which is right for you? Let’s break down the differences so that you can make an informed choice for your finances:
For most first-time borrowers, it makes sense to focus on the federal side to start, as federal student loans generally offer the most competitive interest rates and flexibility for the borrower, compared with student loans from private sources or parent funded federal loans.
When sitting down with your high school senior to fill out the FAFSA, you are in part providing your child with access for federal student loans.
Federal student loans:
Undergraduate student loans on the federal side can come in the form of subsidized and unsubsidized loans.
The difference between the two: The US Department of Education will pay the interest on a subsidized loan while the student is enrolled in school. These subsidized loans are only offered to undergraduate students with financial need. Unsubsidized loans on the other hand are available to all students regardless of their financial need.
Federal subsidized and unsubsidized loans can be taken out in amounts ranging from $5,500 - $7,500 per year dependent on the year that the student is in school. Generally, these loans are issued at advantageous interest rates with the most flexible repayment options available.
Federal Parent PLUS loans:
For parents looking to take out additional federal loans, Parent PLUS loans are an option. These loans are taken out in the name of the parent and are generally not as favorable as the unsubsidized and subsidized student loans listed above. Interest rates on Parent PLUS loans are substantially higher than the interest rate on student owned federal loans, and the parent as a borrower will be subject to a credit check.
Private student loans:
Private student loans are offered by private institutions and banks, and generally require a cosigner on the loan. Interest rates vary based on the credit score of the borrower and cosigner. Unlike federal student or parent loans, private student loans are more rigid. They generally don’t offer flexibility for income-based repayment like federal loans, and don’t participate in federal forbearance and federally issued interest freeze programs (i.e. COVID) like federal loans do.
Have questions about which loans are the best fit for your child’s college funding? Feel free to schedule a time to connect.
All the best,
Andrew Holmes, Certified College Planning Specialist™
Andrew@PlanWithFPS.com
617-630-4978
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