How I Compared All My Family’s Student Loan Options
When you look at the variety of funding options available to pay for college, it’s easy to feel overwhelmed. Between federal loans, home equity, parent loans, and private student loans, where do you even start?
According to a survey of 3,510 parents of college students from College Ave Student Loans conducted by Barnes & Noble College InsightsSM in April 2018, 69% of parents found the process of figuring out how to pay for college to be the most stressful part of the college process.
To make it easier for you, we reached out to several parents in our Paying For College 101 Facebook group. They shared their stories and shared why they made the choices they did.
Here’s what they had to say…
Max Out Federal Student Loans and School Aid First
In the survey mentioned above, 59% of parents said that college was more expensive than they anticipated. All of the parents we talked to focused on taking out federal student loans first. These have fixed interest rates and are only in the student’s name.
In addition, if there was any school aid or scholarships available, these were obviously a first choice.
When there was still a financial gap – as there will be for most families – the remaining options are to use home equity, Parent PLUS loans, or private student or parent loans.
No one we spoke to took advantage of home equity, but several parents have shared in the group that a home equity line of credit (HELOC) was part of their strategy. It may be a good option for you as well!
Parent PLUS vs. Private Loans
In the College Ave Student Loans survey mentioned earlier, 15% of parents choose federal parent loans while 11% chose private student loans. All of the parents we spoke with chose private loans instead of Parent PLUS. There were two main reasons.
One primary reason parents reject PLUS loans is the interest rate. Parent PLUS loans are available from the federal government, and offer fixed interest rates. However, the rates may be higher than private loans. In addition, a PLUS loan has an origination fee of 4.264%, which dramatically increases the price of the loan.
That turns people off. As one parent we spoke to put it: “Percentage rate was number one for us.”
Another parent shared, “I went with the private loan provider I chose because their interest rates were better than some that I had found.”
Interest has a lot to do with how much you’ll pay over time, especially if you’re deferring payments until after your student graduates.
Another big reason to look for private student loans is that your student will have some of the responsibility.
One parent we spoke to explained: “I wanted her to have some responsibility with her education (you’re more apt to take it seriously if you’re paying something!)”
Another aspect of student responsibility is how quickly you can remove yourself as a cosigner. Many students don’t have the credit rating and income to qualify on their own. If you find yourself cosigning, you want to make sure you can be free of the loan in the future.
One parent shared, “One of our primary considerations was when we could petition to remove ourselves as cosigners.”
Requirements for releasing cosigners vary lender to lender, so it’s important to ask about these details while doing your research.
In a recent Facebook Live, Angela Colatriano of College Ave Student Loans shared that student borrowers of College Ave loans can request to have cosigners released when more than half of the loan’s scheduled repayment period has elapsed.
In addition, the student borrower must show income for the previous two years that is more than twice the outstanding balance of all their loans with College Ave, have on-time payments for the most recent 24 consecutive payments, and a credit bureau review that does not show late payments on any other obligations for the past 24 months.
So if one of your objectives is to ultimately have your student be the sole borrower, then researching and understanding all the requirements for being released as a cosigner should be of prime importance to you.
Compare Payment Options
Besides interest rates and being removed as a cosigner, the parents we spoke with all had specific preferences for payment terms.
One parent said, “I wanted one with a low interest rate, that would cover two years (he was a transfer student from a community college), that I could pay the interest on monthly, and that would not be due until six months after graduation.”
Many private loans are able to be deferred until graduation, but interest continues to accrue. You may want to make payments for your student during school. One parent said, “I am making payments trying to get some of it paid off before she gets out but also trying to build her credit up.”
Some lender websites have tools to help you calculate and compare different repayment scenarios. Using College Ave Student Loans’ interactive calculator, you can calculate what the impact is of paying different amounts while your student is in school, on the overall cost of your loan. The calculator also lets you see what choosing different number of repayment years will do to your overall loan costs.
Here are some other things to look for:
- A lot of choices for loan duration, which gives you and your student maximum flexibility
- Options for in-school payment: either interest-only or a low flat payment amount
- The ability to defer full repayment until six months after school ends
- Loan forgiveness if the student passes away or is permanently disabled
- Forbearance and hardship options in case your student struggles after graduation
Other Words of Wisdom
We asked each parent what they would want other parents to know about the loan process.
Here’s what they had to say…
“Definitely compare lots of different institutions. It can save you a lot of money over the life of the loan.”
“Everyone’s needs are different. I would suggest looking at all the options available. I would tell parents not to get into too much debt. Carefully choose what you can afford to pay and assume your child will not have a job immediately after graduation. Choose a lender that responds to questions and is easy to communicate with.”
“The student loan journey is a wild ride but in the end you have to do what is right for you and your family.
I have been on some sites and that say “do not take out loans.” Well, that would be great if you got more merit from schools!
My daughter was a good student in high school and yes, she did get merit money most from out of state schools, but in the end even with their merit aid, in-state was still the best option and more cost efficient for my family.”
Everyone has to make the choice that’s right for their situation. We hope that the information from these parents has helped you know where to turn!
|Interest Rate||Interest Rate & Other Discounts||Repayment Options (Monthly)||Cosigner Release|
|4.73% – 11.46% (Fixed)|
1.57% – 10.23% (Variable)
|$250 principal balance reduction benefit and 0.25% discount with autopay||Immediate repayment, interest-only, fixed monthly payments in school, fully deferred||Yes||CHECK RATE|
|3.49% - 12.99% (Fixed)|
1.24% - 11.98% (Variable)
|Auto-Pay (0.25%)||Flat Payment (In-School), Full (principal & interest), Deferred, & Interest-only||Yes||CHECK RATE|
|5.45% - 9.74% (Fixed)|
1.7% - 7.68% (Variable)
|Auto-Pay (0.25%)||Immediate repayment, interest-only, fixed monthly payments in school, fully deferred||Yes||CHECK RATE|
|4.74% - 11.85% (Fixed)|
1.50% - 9.66% (Variable)
|0.25 percentage point deduction for auto debit||Pay now or later: Make interest payments, pay a fixed $25 payment, or defer payments until after school.||Yes||CHECK RATE|
|4.40% - 12.19% (Fixed)|
1.47% - 9.80% (Variable)
|Full (principal & interest), Deferred, Interest-only, Immediate-Repayment||Yes||CHECK RATE|
|4.86% - 8.49% (Fixed)|
2.99% - 6.95% (Variable)
|Autopay (0.25%)||Full payments (Principal and Interest)||Yes||CHECK RATE|
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This post is sponsored by College Ave Student Loans.