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Many parents want to pay for their kids to go to college. Others want their kids to take on a portion of the cost themselves.
But how about a compromise? A private student loan your child takes out, but with you as a cosigner.
Here are some benefits of taking out private student loans with a cosigner that could help your child for years to come.
Here are four benefits to letting your student borrow for college:
- Taking out a student loan can help build their credit
- Parent PLUS Loans generally have higher interest rates than private loans
- Your child’s loan could be eligible for income-contingent repayment
- You can still help your student while they’re in college
1. Taking out a student loan can help build their credit
If your student is the primary borrower of a private student loan, the loan balance and payments will show up on their credit report. But, as a cosigner, it will appear on your credit report as well. A positive payment history from private student loans is a great first step to helping your child establish good credit.
2. Parent PLUS Loans generally have higher interest rates than private loans
There are two types of parent loans: federal and private. Both are a common way for parents to help pay for their child’s education, but you shouldn’t rush to take out a federal PLUS Loan before reviewing other options. If you have good credit, you may be able to get a private student loan at a lower interest rate.
|Fixed rates||Origination fee|
|Parent PLUS Loans||7.08%||4.248%|
|Private student loans||From 3.53%+||None|
|Rates on federal PLUS Loans for the 2019-2020 academic year. Interest rates on loans disbursed from July 1, 2019, through June 30, 2020. Private student loan info applies to lenders on the Credible marketplace.|
Learn More: Parent PLUS Loans vs. Private Student Loans
In some cases, students and parents qualify for a rate higher than the interest rate charged for Parent PLUS Loans. But that doesn’t make them cheaper. Parent PLUS Loans come with a hefty 4.248% origination fee. Once you take that into account, it may be more expensive than a private student loan with a cosigner.
If you’re looking for lower interest rates on private student loans, Credible has you covered. You can compare multiple lenders at once by filling out just one form.
|Lender||Fixed rates from (APR)||Variable rates from (APR)|
|4.25% - 12.35%9||1.25% - 11.10%9|
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Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Bank Disclosures | 2,3College Ave Disclosures | 7EDvestinU Disclosures | 8INvestEd Disclosures | 9Sallie Mae Disclosures
3. Your child’s loan could be eligible for income-contingent repayment
If your student plans on Public Student Loan Forgiveness (PSLF), they’re required to enroll in an income-driven repayment plan that lowers their monthly payment. PLUS Loans made to parents are eligible for PSLF, but not most income-driven repayment plans. Parents that consolidate PLUS Loans for their child’s education may be eligible for the Income-Contingent Repayment Plan, but not PAYE, REPAYE, or IBR.
4. You can still help your student while they’re in college
When your student takes out a loan with you as a cosigner, you’re in a great position to encourage and guide your child. The joint-status is an opening for you to teach your child important financial lessons and habits around their loan.
Going to college is one of the first major investments your child will make. Joining them as a partner in paying for college helps you share in the cost of sending them to school while empowering him or her to take charge of their future.