After your child has maxed out their undergraduate loans, as a parent borrower, you can choose to fund their education by borrowing money in your own name under a parent loan.
There are generally two options available:
- Parent Loans for Undergraduate Students (PLUS)
- Private parent student loans
PLUS loans are federal loans taken out from the U.S. Department of Education. They allow parents to borrow money for any portion of their child’s tuition that isn’t covered by the school’s financial aid package.
Unlike the PLUS loan program for graduate students, federal PLUS loans taken out by parents aren’t eligible for most income-driven repayment plans. However, parents who take out PLUS loans can combine them in a federal Direct Consolidation Loan and then repay the new consolidation loan under an Income Contingent Repayment (ICR) plan.
Private student loans, however, are taken out from private lenders. Keep in mind, though, that private student loans don’t offer some of the same benefits packaged with federal loans, like access to income-driven repayment (IDR) plans and the potential for loan forgiveness after 10, 20 or 25 years of payments.
But IDR plans themselves have pros and cons. IDR plans can help graduates with modest earnings pay off big loan balances. But they aren’t the best solution for everyone — stretching out your payments over a longer period will in many cases increase the total amount repaid. If you do qualify for loan forgiveness, you might face a large tax bill.
Many private lenders are adopting features like grace periods and optional deferment. You may be able to make interest-only payments while the student is enrolled in school.