Should Parents Cosign Student Loans or Take Out Parent Student Loans?

Joseph Meyer
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Cosigning Student Loans — Pros and Cons

It’s no secret that paying for college is expensive. However, it’s easy to overlook the financial impact a college education will have over the long term. There are many reasons to consider cosigning a student loan. Just as there are several reasons not to cosign a student loan.

Let’s take a look at the benefits of cosigning a student loan. First, if a child has a good credit history, the cosigner gets no credit for the student loan. Second, if the student does not pay, the parent has the responsibility to pay for the loan. Third, the cost of cosigning is usually much lower than the cost of taking out a parent student loan.

There are some major disadvantages to cosigning student loans as well. The most obvious disadvantage is that cosigning puts your credit record at serious risk. This risk is serious because the parent student loan is still payment-sensitive (same as a regular student loan). This means that the loan obligation transfers to the cosigner in case the student becomes a late, missed or failed payment.

Another disadvantage to cosigning a student loan is the increased risk of financial harm. If your child is over-extended, you may feel obligated to help by cosigning the student loan. The result may be disastrous if your child does not take college seriously or loses his or her job.

Parent PLUS Loans — Pros and Cons

Parent PLUS loans are similar to federal Stafford Student Loans. They are granted by the United States Department of Education based on the student’s financial need and the family’s ability to repay the loan.

But there’s one big difference between parent loans and Stafford loans. A parent PLUS loan is not guaranteed – the student is not obligated to pay for it. On the other hand, a Stafford loan is guaranteed by the federal government and students are obligated to pay for the loan based on their income.

Since a parent PLUS loan isn’t guaranteed, it’s important to understand all the pros and cons before applying for the loan.

Private Loans for Parents — Pros and Cons

Finish college debt-free? Sounds like a dream come true, right? You can go to college and get a degree in the field of your choice, without incurring thousands of dollars in debt for tuition. Of course, the idea of taking out loans shouldn’t be completely off the table, but if you’re a student facing the prospect of massive debt, you should definitely consider an alternative option.

One of the most common and convenient ways students finance their education is through student loans. Most students borrow money from the government- ernment, private lenders, or both. When you take out a loan from the government, you are eligible for benefits such as income-based repayment and deferment, which allow you to continue making payments when you are short on cash. When you take out loans from private lenders, you typically do not qualify for these benefits and are responsible for paying back the private loans in full.

Other Factors for Parents to Consider

Before we jump into the pros and cons of cosigning or taking out a parent student loan for your child, let’s first go into a little bit of detail about how interest rates work.

If you’ve ever had a student loan yourself, then you have likely had to deal with how interest rates work and why they matter.

A loan’s interest rate can make a big difference over the life of a loan. The higher the interest rate, the more expensive the loan becomes, and the less money goes to paying off the principle and more money goes to paying interest.

Because of this, interest rates have always been a significant criteria when deciding whether to borrow money, and to whom to borrow money.

Despite this, there are loans today that don’t require you to pay any attention to interest rates. These are called income-driven repayment plans. The idea is that a person’s income should be used to pay down the principle of the loan as quickly as possible, regardless of the size of the loan. These plans allow you to postpone paying on the interest on federal student loans until after you finish school, graduate, or no longer have a high enough income.

Which Option Works Better? Only You Can Decide

You’ve heard it said many times: “You need money to make money.” But what can you do when you don’t have enough money to make money? You now need money to make money.

If you want to help a family member who is in financially strapped circumstances earn a college degree, you may consider cosigning a college loan. However, before you decide to do this, there are several factors that you need to consider and weigh.

The following Q&A will help you decide whether or not to cosign a college loan.

Q. What is a college cosigner?

A.The cosigner is someone who guarantees the loan for the borrower. If you cosign a loan, you agree to be responsible for the loan payments if the primary borrower doesn’t make them. In addition, you become responsible for all costs associated with the loan, including any fees associated with the loan.

Q. How do I become a college loan cosigner?