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Parent vs. Student Loans for College: Which to Pick?

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Between 1979-80 and 2020-21, the total cost of attendance at four-year public and private institutions almost tripled, accounting for inflation. Loans have become a valuable tool in helping families pay for college, and a number of loan options are available to both parents and students. When evaluating their options, many families find themselves comparing parent loans vs. student loans and wondering which is best for their unique situation.


This post will breakdown the difference between parent loans and student loans so you can determine the best way for your family to pay for college.


The Differences Between Student and Parent Loans


The primary difference between student and parent loans is that parent loans are taken out in the parent’s name, while student loans are taken out in the student’s name. Or, more simply, parents are responsible for the debt that accrues through parent loans and students assume the debt accrued through student loans.


Financial aid packages from colleges and universities typically award student loans. Parent loans are commonly smaller than student loans and used as a supplement—helping students fill gaps in financial aid and minimize upfront costs.


According to Sallie Mae, 18% of parents borrowed money to pay for their children’s college education, while 25% of students borrowed money in 2021-22. Overall, 41% of students and families borrowed money to pay for college. In 2022, the average federal parent PLUS loan was $5,225 and the average federal student loan was $6,444. The average private parent student loan was $4,4402 and the average private student loan was $6,630.


Types of Loans Available to Parents


There are two types of loans available to parents who want to borrow on behalf of their children’s college education:


  • Federal parent PLUS loans
  • Private student loans


Unlike traditional student loans, these two types of loans make the parent the primary borrower and hold them accountable for repayment.

Parent PLUS Loans (Federal Student Aid)


Federal parent PLUS loans have become a popular borrowing option for parents seeking to help their children cover the cost of higher education. According to the Education Department’s student loan portfolio, more than 3.7 million people hold parent PLUS loans, with a balance exceeding $100 billion.


Parent PLUS loans are administered by the U.S. Department of Education through its Direct Loan Program. Parent PLUS loans are available to the parents of undergraduate students and often graduate and professional students as well. Parent PLUS loans are only available to parents—biological, adoptive, and, in some cases, step. Those such as grandparents and guardians are ineligible to receive parent PLUS loans.


Parent PLUS loans allow parents to borrow up to the total cost of attendance for their child minus any financial aid they may receive. An advantage of parent PLUS loans is that they’re fixed-rate, meaning that the interest rate will remain the same over the life of the loan. This allows parents to accurately understand their debt obligation. That said, parent PLUS loans generally have higher interest rates than other Direct Loans. Also, parent PLUS loans come with a fairly high upfront fee.


An attractive quality of parent PLUS loans is that they don’t have a specific credit score requirement to qualify. That said, having an adverse credit history—such as bankruptcy, repossessions, or foreclosure—can disqualify you.


It’s worth noting that some parent PLUS loan borrowers would have qualified under the Biden Administration’s student loan forgiveness plan before it was blocked by the Supreme Court. It remains to be seen how parent PLUS loans will factor into future student loan forgiveness efforts.


Private Parent Loans (offered through a variety of loan servicers)


Private parent student loans are available to parents as the primary borrower through private financial institutions like banks, credit unions, and online lenders. Private parent loans have none of the familial restrictions of parent PLUS loans—a grandparent, guardian, or sibling can take one out provided they qualify and are willing to assume responsibility for the debt.


There is more flexibility to what students can borrow through private loans. Unlike parent PLUS loans—which are limited to covering the cost of attendance, minus financial aid—students can use private loans for school-certified expenses like books, meals, housing, and even a laptop.


Private parent student loans are available as fixed- and variable-rate loans. It’s possible for parents to get a lower interest rate with a private parent loan—this is especially true for those with good credit.


Both private parent and parent PLUS loans require immediate repayment, however, private loans are generally more restrictive in this regard. For example, private parent loans typically don’t offer in-school deferment, income-driven repayment, or qualify for student loan forgiveness plans.


Types of Loans Available to Students


There are a handful of loan options available to students to borrow money for college, the most notable of which are:


  • Federal Direct subsidized loans
  • Federal Direct unsubsidized loans
  • Federal Direct consolidation loans
  • Private student loans (offered through a variety of loan servicers)


The different types of student loans vary in a number of ways, including everything from who is eligible for them to repayment requirements.


Direct Subsidized Loans


Federal Direct subsidized loans are available to undergraduate students, based on financial need, and tied to enrollment status. To qualify for a Direct subsidized loan, students must be in a program that leads to a degree or certificate and attending at least half-time.


Direct subsidized loans offer a fixed interest rate—that is, students pay the same rate for the life of the loan—and students don’t pay interest while they are in college. The borrowing limit of Direct subsidized loans varies depending on what year of college a student is in and their dependency status. The borrowing limit of Direct student loans increases with each year of school they complete.


Borrowers of Direct subsidized loans are also given a six-month grace period where interest isn’t charged before beginning repayment when they graduate, leave school, or drop below half-time enrollment.


Direct subsidized loans don’t require a credit check or cosigner and are comparatively flexible when it comes to repayment—they provide access to federal loan forgiveness programs.


Direct Unsubsidized Loans


The main difference between Federal Direct subsidized and Federal Direct unsubsidized loans is that the unsubsidized loans are not based on financial need and are available to undergraduate, graduate, and professional students. Direct unsubsidized loans also accrue interest while a student is in school and during the six-month grace period before repayment is required.


If a student doesn’t pay interest on the loan during their studies or grace period, it’s added to the balance of the loan. This is known as capitalized interest and essentially leaves students paying interest on top of the interest they’ve already accrued.


Like Direct subsidized loans, Direct unsubsidized loans don’t require a credit check or cosigner. Direct unsubsidized loans are also given at a fixed rate for the life of the loan. Another similarity between the two loans is that the borrowing limit depends on the student’s dependency status and what year of school they’re in. 


Direct Consolidation Loans


Federal Direct consolidation loans allow students to combine two or more federal education loans into a single loan. There is no cost to consolidate multiple federal loans and borrowers pay a fixed interest rate based on the interest rates of the loans they’re combining. Students are eligible to consolidate their federal loans once they’ve graduated, withdrawn, or fallen below half-time status.


There are several benefits to Direct consolidation loans. First and foremost, they simplify student loans by centralizing multiple loan payments—often from different loan servicers—into a single payment. Direct consolidation loans can also help lower payments and increase access to income-driven repayment plans and forgiveness options.


Private Student Loans (offered through a variety of loan servicers)


Private student loans are taken out by a student and commonly require a cosigner (someone who promises to repay the loan if the student fails to do so). The terms of private student loans can vary greatly between lenders in everything from fixed or variable interest rates, high- and low-interest rates, and short- and long-term loans.


Most private loans don’t have strict loan limits and allow students to borrow for a variety of educational expenses. While often great in the short term—for example, they allow you to make that much-needed laptop upgrade—they can make it easy to borrow more than you need and accumulate debt quickly.


How to Apply for Parent and Student Loans


The process of applying for student loans is nearly identical for both parents and students.


1. Fill Out the FAFSA


The first step every college-bound student should take toward receiving financial aid is filling out the Free Application for Federal Student Aid (FAFSA). The FAFSA asks students and parents to provide information about their finances, then uses that financial information to calculate a student’s Expected Family Contribution (EFC), which is the amount of money the student and their family are expected to contribute to college expenses.


Completing the FAFSA is necessary to qualify for both Direct subsidized and unsubsidized loans. Filling out the FAFSA is imperative to receive need-based financial aid like federal grants and work-study programs. It’s also used by some scholarships. Some schools award aid on a first-come, first-served basis, making it a good idea to complete the FAFSA as quickly as possible.


2. Complete Other Requirements


Some schools ask applicants to fulfill further requirements after completing the FAFSA, the most common of which is to complete a College Scholarship Service (CSS) Profile. While not directly tied to student loans, a CSS Profile paints a more in-depth financial portrait of students and their families than the FAFSA and is used to award institutional aid on non-federal scholarships—all of which can lower the need for loans.


3. Speak with the Schools


Not every student is offered a loan as part of their financial aid package. If a student wants information about a loan—but wasn’t offered one—they should reach out to the school’s financial aid office. This is an especially important step for those interested in parent PLUS loans, which are often only offered by request. Financial aid offices can also connect students and their families with private loans and help streamline the application process.


Don’t be afraid to negotiate financial aid with schools. You never know what a simple phone call could get you, especially if it’s at a school you want to attend.


4. Apply for Private Loans


Students and their families can also seek out private loans without the assistance of their school’s financial aid office. Private loans consider the creditworthiness of borrowers—that is, they’ll review factors like income, credit history, and debt-to-income ratio of prospective borrowers. Because of this, most undergraduates (who generally have little to no credit history) will need a cosigner.


How to Pay for College Expenses with Parent and Student Loans


The process for paying college expenses is similar for both parent and student loans. Typically, the loan servicer sends the funds to the financial aid office of the student’s college or university. Financial aid officers then apply the funds to the student’s tuition, room, board, and other charges. If any funds remain, the extra money is credited to the borrower’s bank account, where they can use it to pay for other educational expenses.


While the norm is to send funds directly to the institution, in some cases, loan servicers will send the funds directly to the borrower’s bank account. In these instances, it’s the borrower’s responsibility to pay the school with the funds.


How to Find Affordable Schools


One strategy to reduce the cost of college and minimize reliance on loans is to attend an affordable college. There are a number of proven approaches to controlling the expense of college.


1. Look at Schools That Meet 100% Need


A number of colleges and universities are committed to meeting 100% of demonstrated need and some universities will cover the demonstrated need of students without the use of loans. No-loan colleges replace student loans, which require repayment, in their financial aid packages with additional grants and scholarships, which do not need to be repaid.


Students concerned that their financial situation will affect their odds of admission needn’t worry at some schools. Many of the colleges that meet 100% of demonstrated need and provide no-loan financial aid packages also practice need-blind admissions. In other words, they don’t consider an applicant’s finances when making admissions decisions.


2. Consider Schools Where You Have a Strong Profile


Colleges want to entice the best and brightest applicants to their campuses. If a student’s profile is particularly strong at a school and/or they possess the qualities a school is seeking, there is a strong likelihood that they will receive a generous merit aid scholarship.


Many top schools don’t award merit aid—for example, none of the Ivy League schools do—which makes it a valuable tool for less selective colleges to lure competitive applicants to their schools. Some colleges even award scholarships to students for earning a certain score on the SAT/ACT.


CollegeVine can help students understand their odds of college admission and chances of winning a merit scholarship. Our free chancing engine uses factors like grades, test scores, and extracurriculars to estimate your odds of getting into over 1,600 colleges. The higher your chances of admission, the better your odds of winning an award!


3. Always Use the Net Price Calculator


The sticker price of a school is a poor indicator of what college will actually cost. According to a 2017 study, just 38% of students pay the full sticker price for their college education. Net price provides a more accurate picture of what college will really cost—it’s a calculation of the total cost of attendance minus any grants or scholarships a student receives.


The overwhelming majority of colleges provide net price calculators on their websites—use them, and you will be able to more accurately plan for the expense of college.

Short Bio
A graduate of Northeastern University with a degree in English, Tim Peck currently lives in Concord, New Hampshire, where he balances a freelance writing career with the needs of his two Australian Shepherds to play outside.