Parents: Avoid These School Loan Risks

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For most families, parents taking on school debt in order to cover the cost of their child’s undergraduate education is the norm.

Doing so, however, whether by co-signing or by straight parent loans, can be expensive, hinder the ability to borrow, impact credit, or possibly lead to default.

We’ve listed three common risks parent borrowers face and steps to take to address them…


Unlike undergraduate students, after all financial aid has been applied, parents can borrow the amount needed to cover the remaining annual cost-of-attendance.

The costs (i.e., interest rates) associated with parent loans are significantly higher than those associated with student loans.

Be sure to complete the Free Application for Federal Student Aid (FAFSA), having your child borrow as much of the subsidized and unsubsidized federal loans as possible before you borrow money

Co-signing a private loan before maximizing federal student loans.

Utilize private loans only after all grants, awards, scholarships, family savings, work-study, and all federal student loans have been applied toward the annual cost-of-attendance.

If your child is under 21, a co-signer likely will be needed for a private loan. You’ll be legally responsible for payment if your child can’t repay the loan.

Be sure to deplete all other financial resources before borrowing a private loan. If you do co-sign a loan, discuss the seriousness of the debt with your child.

Choose variable over fixed-rate loans.

The Fed has increased federal funds rates twice this year; one more increase is expected.

If your loans have variable rates, you’ll feel the impact.

Lock in a lower fixed rate before another increase occurs.

For assistance with your college planning campaign, contact our Professional College Planners to schedule your FREE evaluation.

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