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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 3.95%+||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)|
|5.09% - 12.49%6||2.15% - 10.37%6|
|4.74% - 11.85%9||1.25% - 9.44%9|
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Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 1Citizens Bank Disclosures | 2,3College Ave Disclosures | 6Discover Disclosures | 8EDvestinU Disclosures | 9Sallie Mae Disclosures
Citizens Bank Student Loan Rate Disclosure Variable rate, based on the one-month London Interbank Offered Rate ("LIBOR") published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of June 1, 2020, the one-month LIBOR rate is 0.17%. Variable interest rates range from 1.20%-9.53% (1.20%-9.38% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.40%-12.19% (4.40% - 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co- signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
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.