Most parents think their kids' college costs will top $100K, new study finds: Here's how to pay for it
About two-thirds of parents agree that the cost of college will top $100K next year. Compare your options for covering the costs, including federal Direct Parent PLUS Loans and private student loans. (iStock)
With the cost of college on the rise, covering the extra expenses can place a financial burden on students and their parents for years to come. And a newly-released survey shows just how costly parents expect higher education to be.
Most parents agree that a college degree now comes with a six-figure price tag, according to Princeton Review, a college admission services company. Princeton Review surveyed more than 14,000 college applicants and parents, finding that 63% of parents estimated the cost of attendance will top $100,000, while only 30% of students said the same. Additionally, only 9% of survey respondents said that their highest priority is choosing the college that will be the most affordable.
Considering the rising price of college, it's likely that traditional federal financial aid won't cover the entire cost. Parents of dependent undergraduate students have a few options for covering additional college-related costs, including federal Parent PLUS Loans issued through the office of Federal Student Aid (FSA), as well as private student loans.
Weigh the pros and cons of both types of loans in the analysis below, and visit Credible to compare private student loan interest rates to start exploring your options for an additional loan to pay for college.
WHY YOU SHOULD KEEP PAYING YOUR FEDERAL STUDENT LOANS DESPITE COVID-19 RELIEF
Parent PLUS Loans vs. private loans: Which is best for you?
Private student loans and federal Parent PLUS Loans are commonly used to help students pay for college when other federal loans won't cover the full cost. Both are valid options but there are a few key differences for parent borrowers to consider, according to Credible:
- Interest rate: Parent PLUS Loans have a fixed rate of 6.28%, while private student loan rates can be as low as 3% for fixed loans and about 1% for variable-rate loans.
- Origination fee: Private student loan fees depend on the lender, and Parent PLUS Loans have a 4.228% loan origination fee, which may be added to the total loan amount.
- Loan repayment term: Parent PLUS Loans have a longer loan term of 10 to 25 years, while private loans typically vary from 5 to 20 years in length.
- Federal benefits: Parent PLUS Loans are eligible for income-contingent repayment (ICR), as well as deferment or forbearance if you're experiencing financial hardship and may default on the loan.
- Loan forgiveness: If your child plans on applying for Public Service Loan Forgiveness (PSLF), Parent PLUS Loans are eligible as long as they're consolidated into a Direct Consolidation Loan on an ICR plan.
Because of the lower interest rate, co-signing a private student loan with your child may make more sense than a Parent Direct PLUS Loan, unless you plan on taking advantage of federal protections through the Department of Education, like loan forgiveness programs or ICR. The Parent PLUS Loan application also requires that you fill out a Free Application for Federal Student Aid (FAFSA) form first.
If you're trying to determine the best course of action for your student, you can see your estimated private student loan interest rate without a credit check on Credible. This can help you make an informed decision and determine which type of loan to borrow.
PARENT PLUS LOANS VS. PRIVATE STUDENT LOANS: WHICH HAS BETTER RATES?
See how much your monthly student loan payment will be
After you've prequalified for a private student loan, it's easy to see your estimated repayment terms by using an online student loan calculator like this one from Credible. This can help you decide if you want to stretch out the loan term to lower the monthly payments, or if you'd rather pay off the loans faster to save money on interest.
If you're not happy with the repayment plan, consider working to improve your credit score before applying for a private student loan. Private lenders determine your interest rate based on a number of general eligibility requirements, such as your credit score and debt-to-income ratio. The best student loan rates are reserved for borrowers with good or better credit, defined as a score of 670 or higher using the FICO scoring model.
Still not sure if a private student loan is right for your college student? Get in touch with a dedicated loan officer at Credible to discuss your options for college funding if you need to borrow more than expected.
PRIVATE STUDENT LOANS CAN NOW BE DISCHARGED IN BANKRUPTCY, BUT CONSIDER THE ALTERNATIVES FIRST
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.