Student Loan Alternatives for Parents
Student loans for parents often come in two forms: private student loans taken out by parents on behalf of a student, or Parent PLUS Loans, a federal student loan that is available to some parents. However, no matter which kinds of parent-student loans you are considering to use to help pay for your child’s education, they are still all loans. Both private student loans and Parent PLUS Loans require a credit check, so if your credit score does not pass or you’re simply not in a good position to take on debt, your application could be denied. If you’re a parent who wants to help your child pay for a college education, but you’re not interested in student loans, here are some alternatives to help you put your child through school.
Paying for College in the Future
If you have a lot of time to plan for your child’s college education, then there are a few options that you can pursue right away. These options for college financing are best for parents with very young children with many years left until college.
Savings Accounts for College
As with any long term financial goal, one of the best things that you can do to support sending your child to college is to put money aside into a savings account. By setting aside money each month, you can eventually build up a large sum, which you can then use to pay for college tuition, fees, and other education-related expenses. However, since the cost of college may continue to grow in the future, be sure that you are saving enough money for your child’s education, and starting early. Identify a goal that you want to reach before you start saving and then determine how much money you’ll need to set aside each month to reach it.
Tax-Free College Savings
Although you can use simple personal savings account your savings plan, there are also several college savings accounts that are tax exempt, meaning that you can withdraw money from them without paying taxes on those withdrawals. All you have to do is put your funds into a tax-advantaged college savings account — such as an ESA or a 529 College Savings Plan — and then withdraw those funds for qualifying education expenses, such as tuition and fees at your child’s college of choice.
Paying for College Right Now
College savings accounts are a great idea when you have many years to plan ahead. However, they aren’t viable for everyone. If saving large amounts of money hasn’t been financially feasible for you in the past, or your child has just now committed to their decision to go to college, there are still plenty of options that will allow you to help pay for your child’s college education right now.
Complete FAFSA for Financial Aid
Regardless of how you plan on helping your child pay for college, every prospective college student should fill out their FAFSA. The FAFSA was created in 1992 and it is a form used by the Department of Education to determine a student’s need for financial aid. It plays an important role in determining the types and amounts of student loans that a person can withdraw, but it also determines eligibility for grants and scholarships, which are forms of aid that you don’t have to pay back after you graduate.
Tap Into Home Equity
If you have equity on a home and you need money, it is possible to utilize that built up equity to get that money you need. This will involve selling the equity that you own on your home to a lender, who will then allow you to buy that equity back over time, just as you would with any other mortgage. However, as with all forms of debt, avoid tapping into your home’s equity unless you are confident that you can repay it and the interest rate makes sense compared to your other available options.
Personal Loans for College
If you haven’t qualified for student loans for parents, but you still want to take out a loan to help your child get through college, then you can always take out a personal loan and use that money for education-related expenses. However, beware of predatory lending schemes like payday loans if you do this. These schemes may give you the money that you need quickly, but they may trap you in a cycle of debt. Work only with reputable private lenders who deal in private student loans.
Pay With Your Retirement Savings
Depending on how much you have saved for retirement, it’s possible to use some of that savings to help your child pay for college. This option can be especially useful if you’re using a Roth IRA to save for college. According to the IRS, distributions from your Roth IRA that are used for qualifying education expenses are exempt from the tax penalty that is normally associated with taking money from your IRA before you reach the age of 59½.
Cosigning for Your Child’s Student Loans
Sometimes helping your child pay for college doesn’t require any money from you. As many parents know, taking out loans can be difficult for people who don’t have a very long credit report. This is true of many students, who are too young to have an extensive credit history that has helped them improve their credit score.
For these students, a parent cosigner for a student loan can be a life-saver. Cosigning your child’s student loans will make lenders more confident in lending to your child. As always, if you are cosigning student loans, make sure that you will be able to take on that debt if your child can’t pay it back. As a cosigner, this is your responsibility. However, if circumstances change later on down the road, there may be options for cosigner release, a process that will allow you to take your name off of your child’s student loans.