Kathy Jane Buchanan
Written by Kathy Jane Buchanan

Kathy Jane Buchanan has more than 10 years of experience as an editor and writer. She currently worked as a full-time personal finance writer for PaydayChampion and has contributed work to a range of publications expert on loans. Kathy graduated in 2000 from Iowa State University with degree BSc in Finance.

Raising a family is overwhelming because t is necessary to fund college tuition or other educational expenses. Parent loans give families access to funds while allowing them to control their budgeting decisions. Parent loans offer low-interest rates and flexible repayment terms competitively. Parent loans have certain tax benefits associated with them. Parent loans help ease the stress of covering school-related expenses for students and parents alike, providing peace of mind in knowing that the major expense has been handled appropriately and responsibly.

Parent loans are a helpful tool for students who need financial assistance to pay for their education. Parent loans are available to the parents of undergraduate students and are used to cover various education-related expenses, including tuition, fees, and room and board. Families can help bridge the gap between the cost of attendance and the financial aid their child has received by taking a parent loan. Parent loans provide students with more flexibility when it comes to choosing a school or program. Students can attend a more expensive school or pursue a degree in a field with higher costs without worrying about how to pay for it.


  • Parent loans are a financial resource that provides funds to families to help make higher education attainable for their children, bridging the gap between scholarships and grants and what remains to be paid out of pocket.
  • Parents must have a good credit score and demonstrate financial stability through income and other assets. The student needs to show academic achievement and plans for financing college expenses.
  • Types of parent loans include Direct Parent PLUS loans, private parent loans, home equity lines of credit (HELOC), home equity loans, and transition loans.
  • The advantages of parent loans include low-interest rates, flexible repayment terms, tax benefits, and providing students’ access to quality colleges.
  • Things to know about parent loans include understanding the qualifications for borrowing, knowing how parental income affects student loan eligibility, researching thoroughly before applying and being aware of the risks associated with borrowing, such as defaulting on payments and losing collateral.

What Are Parent Loans?

Parent loans are a valuable financial resource for parents and guardians helping their children pay for college. Parent loan span the gap between what is available in scholarships and grants and what remains to be paid out of pocket—connecting families with funds that help make higher education attainable. Parent loans offer an alternative way to cover educational costs when other funding sources don’t provide enough support. Parent loans enable access to quality colleges. Parent loans make college dreams come true, and it’s saving on tuition fees or reducing student debt load post-graduation.

A parent loan is a federal student loan that allows parents to borrow money to help pay for their child’s education which has a few features that make them unique. First, parent loans require a credit check, so parents need to have good credit to be eligible. Second, the loan is in the parent’s name, so the parent is responsible for repayment, not the student. Third, the loan must cover the full cost of attendance, including tuition, fees, room and board, and other expenses. The interest rate is fixed, meaning it does not change over the life of the loan.

Who Qualifies For Parent Loans?

Parent loans have been around for decades, but the requirements to qualify have recently shifted. Understanding who receives the funds is necessary to decide if a parent loan is beneficial. Parents must meet certain qualifications to take a parent loan, including having a good credit score and demonstrating financial stability through income and other assets. The student needs to demonstrate their level of responsibility by providing evidence of academic achievement and plans for financing college expenses.

Many lenders require the student’s family to provide information such as tax returns and bank statements before approving the loan request. All potential borrowers must thoroughly research what is needed before applying. Knowing who qualifies for parent loans is only part of the equation, and understanding how your parents’ income affects your student loan eligibility is another matter altogether.

What are the Types Of Parent Loans?

Parent loans are a lifeline for families looking to cover the cost of college. Access to the right parent loan amount is integral to any education financing strategy. Knowing the types of parent loans is necessary because it helps parents make informed decisions when financing their child’s education. Understanding the options available, such as Direct PLUS Loans and private student loans, helps parents determine which loan best fits their financial situation and needs. Different types of loans have varying interest rates, repayment terms, and eligibility requirements, which impact the parent’s ability to repay the loan and their overall financial well-being. Parents can make informed decisions by knowing the different types of parent loans.

1. Direct Parent PLUS Loan

The Direct Parent PLUS loan is a great option for parents who want to help their children fund their education. The Department of Education issues a direct parent-plus loan, covering university costs such as tuition and fees, room and board, books and supplies, transportation, and more. It must be repaid with interest after the student graduates or ceases enrollment in school.

The interest rate for Direct PLUS loans is 7.54% for 2022-2023, and an origination fee of 4.228% is deducted from each loan disbursement, according to nerdwallet.com.

Loan TypeInterest RateOrigination Fee
Direct PLUS loans7.54%4.228% is deducted from each loan disbursement.

The interest rate and origination fee are specific to the 2022-2023 academic year for Direct PLUS loans. The data vary in other years or for different types of loans.

2. Private Parent Loans

Private parent loans offer many advantages over other types of student loans. Many lenders require only a minimum amount of credit score or income to qualify for private parent loans making them accessible to people with limited financial resources. Comparing rates across multiple lenders before deciding on a lender is best because the terms and conditions vary widely between lenders when looking for a private parent loan.

Private parent loans are a necessary financial tool for families needing help covering their child’s education costs. Private lenders offer private parent loans and help bridge the gap between the cost of tuition and financial aid or other funding sources. Private parent loans provide flexible repayment terms for various educational expenses, including tuition, room and board, and textbooks. Knowing the potential risks and drawbacks of debt is necessary before pursuing a private parent loan.

3. Home Equity Line Of Credit (HELOC)

A home equity line of credit allows you to borrow money during college directly from your home equity rather than taking a separate loan. A HELOC has no fees associated with it except closing costs if necessary. It offers several flexible repayment options, such as credits that cover up to 100% of tuition costs per quarter/semester or interest-only payments. Your child must be enrolled at least half-time in college or graduate school programs to defer principal payments until graduation, when larger amounts are due immediately, with no grace period.

A Home Equity Line Of Credit (HELOC) is a financial tool that allows homeowners to borrow against the equity built up in their homes. A home equity line of credit is a good option for homeowners needing access to funds for home improvements, debt consolidation, or unexpected expenses. HELOCs offer lower interest rates than other forms of credit, making them an attractive option for borrowers. Lenders are willing to offer larger credit limits than other unsecured loans since the home secures the credit line. It’s necessary to note that using a HELOC means putting your home at risk as collateral.

Here are some statistics about Home Equity Lines of Credit (HELOCs):

Number of HELOCs9 million+
Average interest rate6.6%
Maximum credit limit85% of the appraised value of your home
Eligibility requirementsGood credit score and significant equity in your home
Statistics about Home Equity Lines of Credit (HELOCs)

4. Home Equity Loan

Home equity loan gives borrowers who own their homes outright or has built significant equity into their home ownership status an opportunity to borrow against the collateral rather than paying out cash for student tuition needs upfront. The borrower pays back the specified sum at a predetermined rate once they finish school. Home equity loans produce lower rates than traditional student loans but present a higher risk if the borrower defaults on payments. Their house is taken away from them due to foreclosure proceedings brought against them by creditors searching for unpaid debt payment remuneration compensation via court judgment awards.

A home equity loan is a type of loan that allows homeowners to borrow money against the equity built up in their homes. The importance of a home equity loan lies in the fact that it provides homeowners with access to a large amount of money at a relatively low-interest rate. A home equity loan is useful for financing major expenses such as renovations or paying off high-interest debt. Homeowners must know that taking a home equity loan means putting their home at risk, as failure to repay the loan results in foreclosure.

5. Transition Loans

Transition loans are excellent debt products that provide financing for students transitioning from college into paid employment without having cosigners on board as guarantors showing governmental certifications as legal residents within US borders requirements as asked by lending institutions when direct physical presence contact details create assurances allowing for trustworthiness when offering mid-sized sums. Transition loans are necessary for individuals or businesses undergoing a significant change, such as moving to a new location, changing ownership, or starting a new project.

Transition loans provide temporary financial support during the transition period, which helps to alleviate the stress and financial strain that arise during times of change. Transition loans help to know that a business or individual can continue operations or move forward with their plans even if they are experiencing financial difficulties or facing unexpected expenses. Transition loans are valuable for people who need financial support during change and uncertainty.

Parent loans stats

What are the Advantages Of Parent Loans?

Parent loans provide a unique and attractive option for parents of college students looking to help finance their child’s education. Parent loans offer significant benefits allowing parents to give their children the best life. Parent loan advantages include low-interest rates, flexible repayment, tax benefits, no cosigner required, early repayment incentives, and a quick approval process.

Listed below are the advantages of parent loans.

  • Low-Interest Rates
    The main advantage of taking a parent loan is that lenders offer lower interest rates than private student loans, which makes it an attractive option for covering the cost of college tuition while minimizing the amount of money owed in interest payments.
  • Flexible Repayment Terms
    Parent loan repayment terms are more flexible than private student loans allowing parents to repay the loan over a longer period and potentially reducing monthly payments.
  • Tax Benefits
    The interest paid on a parent loan is tax deductible, saving you on yearly taxes and providing financial relief while paying off your loan.
  • No Cosigner Required
    Parent loans require no cosigner eliminating any risk and paperwork associated with getting approved.
  • Early Repayment Incentives
    Many lenders offer incentives for early payment, such as reduced interest rates or waived fees, helping reduce total costs even further if you pay off your parent loan immediately or ahead of schedule.
  • Quick Approval Process
    Most applications for parent loans are processed quickly. Hence, funds become available fast and help cover any expenses needed now rather than waiting weeks or months before having access to the money required for school costs or other needs related to college attendance.

What are the Disadvantages Of Parent Loans?

Parent loans provide opportunities for low-income families to access college. Disadvantages are associated with borrowing money from parents. It leads to tension within the family due to repayment expectations and obligations. The risk of a parent loan is that parents are responsible for repaying the loan even if their child cannot repay it, which means that if the parent takes out a loan and experiences financial difficulties. Parent loans have higher interest rates than other types of student loans, meaning that parents end up paying more in interest over the life of the loan. It’s necessary for parents to carefully identify the risks and benefits of taking a parent loan before making a decision.

Listed below are the disadvantages of parent loans.

  • Higher Interest Rates
    One major disadvantage of parent loans is the higher interest rates. Look at origination fees, credit, income check fees, or limitations on repayment plans.
  • No Tax Benefits
    Parent loans do not have tax breaks or incentives which makes it more expensive for parents to take a parent loan and increases their financial burden even further, unlike student loans that offer tax deductions and other tax benefits to students and parents when paying off tuition costs.
  • Burden On Parents
    Parent loans are attached to your name, so your budget must absorb debt and regular expenses like food, clothes, rent, and other bills. It puts a huge strain on finances for parents who already struggle financially and cannot pay off their parent loan debts due to limited resources available.
  • Early Repayment Penalty Fees
    Many lenders impose ‘prepayment penalty fees’ if you decide to repay your parent loan early or make larger payments than you initially agreed with your lender/banker. You incur charges for late fees or modify repayment plans according to your convenience, which racks up extra costs over time without you even realizing it.
  • Banks Don’t Offer Flexible Payment Plans
    Banks offering parent loans don’t provide flexible payment options compared to federal student loan programs, which provide more personalized payment plans depending on individual needs and circumstances like unemployment deferment or extended terms of payment, making them more suitable compared to parent loans when it comes down to the details involved in repaying tuition expenses effectively.

What Are the Things to Be Aware of When Taking A Parent Loan?

Parents must know the loan terms, such as interest rate, repayment period, and total amount borrowed. Parents must know their current budget to afford monthly payments and other bills. Parents must research alternative funding methods, such as scholarships or grants to provide more favorable funding options. Before signing any agreements, understanding all risks of taking a parent loan is necessary.

Below are the things to be aware of when taking a parent loan.

  • Interest Rate
    The interest rate of a parent loan is one of the most necessary factors to understand. It’s necessary to compare different lenders and find the one with the lowest available interest rate to minimize how much you have to pay back.
  • Loan Term
    You must know the terms of your loan carefully as it determines how long your loan lasts and what kind of monthly payments you’ll need to make. Longer loan terms lower your monthly payments but result in total interest paid over time. Choose a term that fits your budget and timeline for paying off the loan.
  • Grace Period
    Grace period delays when payback starts after receiving the funds when looking up different parent loans. It gives you extra breathing room while still paying back the loan on time without penalty.
  • Repayment Flexibility
    Look for parent loans that provide repayment flexibility, such as adjusting payment due dates or pausing payments under certain circumstances, such as during military deployment or experiencing financial hardship due to job loss or other events out of your control.
  • Fees
    Understand all fees associated with the loan before signing, including origination fees, late payment fees, prepayment penalties, or other costs added to interest expenses during repayment for taking a parent student loan. Knowing about them helps prepare you for unexpected costs during repayment.
  • Cosigners
    Adding someone else’s name further strengthens your credibility, so lenders are more inclined to work with you both financially speaking.

Do Parent Plus Loans Pass On To Children?

No, Parent Plus Loans are not directly passed on to the children. The loan terms usually state that the parent is responsible for making monthly payments and any remaining balance after the parent dies. Parents designate a beneficiary legally responsible for repaying the loans if needed. It is up to parents and guardians to decide how their Parent Plus Loan debt must be handled after they pass away.

Parent PLUS loans do not pass on to children if the parent who took out the loan passes away or becomes disabled. The responsibility for repaying the loan remains with the parent borrower. The loan is discharged if the parent borrower dies or becomes permanently disabled, which provides relief for the borrower’s family. Still, it’s necessary to note that not all Parent PLUS loans are eligible for discharge. It’s necessary for parents to understand the terms and conditions of their loans and to know about purchasing life insurance or disability insurance to protect their family in case of unexpected events.

Does Your Parents’ Income Affect Your Student Loan?

Yes, parents’ income does affect your student loan. Your parents’ income affects your student loan if you are applying for federal financial aid because your parents’ financial information is used to determine your eligibility for grants, work-study, and loans, which is because the government assumes that parents have a responsibility to help pay for their children’s education their income is taken when determining the amount of aid you receive.

The government and other lenders look at your parent’s financial situation to see if you are eligible. Students whose parents have higher incomes receive more in student loans than people with lower payments. Students whose parents cannot provide the necessary financial aid must find funding sources such as private loans or work-study programs.


Parent loans are a financial resource that provides families with funds to cover college tuition and other educational expenses. Parent loans are available to parents with specific qualifications, such as having a good credit score and demonstrating financial stability. Different types of parent loans are available, including Direct Parent PLUS Loans, Private Parent Loans, Home Equity Lines of Credit, Home Equity Loans, and Transition Loans. The advantages of parent loans include low-interest rates, flexible repayment terms, and tax benefits. Parent loans are valuable for families seeking a college education and reducing financial stress.

Frequently Asked Questions

What is a parent loan, and how does it differ from student loans?

Parent loans are personal loans taken out by parents to help pay for their child’s undergraduate education, with the parent as the borrower responsible for repayment. They differ from student loans by being based on the parent’s credit versus the student’s.

What are the different types of parent loans available, and how do they work?

Common options are federal parent PLUS loans, which require credit approval and carry a fixed 7-8% interest rate. Private lenders also offer student parent loans with variable rates based on credit. Terms, limits, eligibility, and repayment plans differ between types.

What are the pros and cons of taking out a parent loan to finance a child’s education?

Pros are building credit for parents new to borrowing and providing funds when limits are reached for student loans. Cons include responsibility falling completely on the parents for repayment and accruing loan costs. Parents’ retirement savings may suffer.

What factors should parents consider when deciding whether to take out a parent loan for their child’s education?

Key factors are repayment ability, retirement savings impact, total costs and financial aid package, expected graduate salary, and the loan’s interest rates, fees, and flexibility if hardship arises. Parents’ credit and debt level also determine eligibility and terms.

Are there any alternative options to parent loans for funding a child’s college education, and how do they compare in terms of cost and benefits?

Alternatives are scholarships, grants, work-study jobs for students, student’s own savings/income, and less expensive college options. While less flexible, they avoid accruing loan debt and interest. Home equity loans are another option with potentially better rates.

Kathy Jane Buchanan

Kathy Jane Buchanan has more than 10 years of experience as an editor and writer. She currently worked as a full-time personal finance writer for PaydayChampion and has contributed work to a range of publications expert on loans. Kathy graduated in 2000 from Iowa State University with degree BSc in Finance.