A Parent's Guide to Paying For College: Key Questions Answered

Planning for college is an exciting time for everyone involved. There is so much to learn, to experience, to explore, and to do! For parents and guardians, the college process can be both stressful and emotional as you gear up for this next stage and watch your child transition into young adulthood. One major challenge of this process can be paying for the rising cost of college. Uprooted Academy is here to walk you through the financial options you have. Let’s get started with this continued ‘Q&A” series on the financial process.

Question #1: What are the ways that I can pay for my child’s college?

There are several ways to pay for your student’s college tuition. Let’s dig in to the different options you have:

• The 529 Plan. Parents are able to start contributing to the 529 Plan as soon as their child is born. When you contribute savings to this plan, this money can grow tax-free. Additionally, there are no taxes applied when this money is withdrawn to pay for educational expenses.

• Paying out of pocket. If possible, the best way to pay for college is to use any savings and pay as much as possible directly.

• Refinancing your mortgage. Some folks look into options such as refinancing their house. Whether or not this is the best option for you and your family depends on a variety of factors. For example, people with stronger credit scores generally get better interest rate offers on their mortgages, allowing them to save hundreds of dollars a month.

• Scholarships. This is financial support that is awarded to students based on a set of criteria required by the scholarship committee. This money does not need to be paid back.

• Taking out loans. Help your student begin to seek out scholarships that are relevant to you. This is also a good time to begin to learn more about the FAFSA (Free Application for Federal Student Aid) application process. Discuss with your student who will be responsible for payment upon graduation.

  • The FAFSA. The first thing to know about the FAFSA is that it is a free reporting tool which will help you determine your EFC (Expected Family Contribution). Your EFC is based on your income, assets, and the number of students you are supporting through college.

  • Federal Pell Grant. This is money awarded to students who have a low expected family contribution This money does not need to be paid back and is granted to students on a sliding scale according to their EFC.

  • Stafford Loans. A first-year student can take a maximum of $5,500 without a cosigner. Depending on your EFC, some of the interest on these loans could actually be subsidized, meaning interest will not accrue on the subsidized loan amount until six months after a student leaves college or graduates.

  • Federal PLUS Loans. These are loans issued by the Department of Education for parents who are looking to pay for school. Be aware that forgiveness and income-based repayment programs can be limited with this type of loan.

  • Private Student Loans. These loans may offer better interest rates and help you support your student financially as they pay for college. The drawback is that they may not have strong repayment plan options.

Question #2: What is the difference between federal student loans, federal parent loans, and private loans?

Throughout this series, we’ve been talking a lot about the FAFSA and your potential financial aid package. As we shared, your financial aid package will likely consist of scholarships, grants, loans, and work study opportunities. There are many different types of loans, so let’s begin by comparing these federal student and parent loans with private loans.

Topic	Federal Student Loans	Federal Parent Loans	Private Student Loans*
​Payment Due Date	​Payments are due when you graduate, leave school, or change your enrollment status to less than half-time.	​Parent loans enter into repayment 60 days after disbursement but can choose to put off payments until their student has graduated, left their school, or changes their enrollment to less than half-time.	Depends on the loan company. Some private loans require payments while you are in school, but some allow you to defer payments until you graduate.
​Interest Rates	​The interest rate is fixed. Check out the current interest rates on federal student loans.	The interest rate is fixed. Check out the current interest rates on federal parent (PLUS) loans.	​The interest rate could be fixed or variable, depending on the loan company.
Subsidies	Students with financial need can qualify for subsidized loans. This means that the government pays the interest while you are in school at least half-time.	​These loans are not subsidized. Parents are responsible for all of the interest on the loans.	Private loans are most likely not subsidized.
​Credit Check	​No credit check required.	​A credit check is required to determine eligibility. You can learn more about eligibility requirements here.	​Generally credit checks are required to show an established credit record. If you do not have an established record, a co-signer may be needed.
Tax Benefits	​The interest accrued may be tax deductible.	The interest accrued may be tax deductible.	The interest accrued may be tax deductible.
​Consolidation and refinancing options	​There are options to consolidate your loans into a Direct Consolidation Loan, which will allow you to make fewer monthly payments. You can learn more about loan consolidation here.	​There are options to consolidate your loans into a Direct Consolidation Loan, which will allow you to make fewer monthly payments. You can learn more about loan consolidation here.	​Private student loans cannot be consolidated into a Direct Consolidation Loan, but you may have the option of refinancing.
​Postponement options	​There are temporary relief options available to those who are having trouble repaying their loan.	​There are temporary relief options available to those who are having trouble repaying their loan.	​Each lender has different options. Before signing anything, be sure to ask about the possibility of postponing or lowering monthly payments.
​Repayment Plans	​There are a few repayment plans, including an option to tie your monthly payment amount to your income.	​There are a few repayment plans, including an option to tie your monthly payment amount to your income.	​Check with your individual lender to learn more about your repayment options.
​Prepayment Penalties	​There is no prepayment penalty fee.	​There is no prepayment penalty fee.	​Check with your lender to ensure that there are no prepayment penalty fees.
​Loan Forgiveness	​There is potential for partial to full loan forgiveness for working in public service. You can learn more here.	​There is potential for partial to full loan forgiveness for working in public service. You can learn more here.	​Although many private lenders do not offer loan forgiveness programs, some student loans from state agencies can be forgiven in certain circumstances.
​Finding Support	​Contact your loan service provider first. You can also provide feedback here.	​Contact your loan service provider first. You can also provide feedback here.	​Contact your loan service provider first. If you cannot work with them, contact the Consumer Financial Protection Bureau for support.

Question #3: Can Parent PLUS Loan debt be transferred from parent to student?

A major consideration to take when considering Parent Plus Loans is that they are taken out in your name, not your student’s name. Because federal student loans in general cannot be transferred, you cannot directly transfer this debt to another person, such as your student once they graduate college and enter the workforce. Even though you can’t transfer the Parent PLUS Loan, you can refinance the loan under someone else’s name by transferring the debt to a private lender. If you do make this decision, consider that private lenders may be less flexible than federal loans when it comes to options for deferment, as is seen during the current Covid-19 pandemic, or forgiveness, seen in the most recent decision to cancel $10,000 in federal student loans made by President Biden. Your student (or someone else) could also log in and make payments under your name if you want to keep the benefits of a federal loan. Just remember the only person legally required to make the payments is the person whose name is on the loan.

Question #4: Do Parent PLUS Loans qualify for forgiveness programs?

There are a few options for Parent Plus Loan forgiveness. Let’s take a look at the options:

• Public Service Loan Forgiveness (PSLF). The Public Service Loan Forgiveness (PSLF) program forgives the remaining balance on your federal student loans after 120 payments working full-time for federal, state, Tribal, or local government; military; education; or a qualifying non-profit.

• Career-Based Loan Repayment Assistance. In addition to working in public service, there are a variety of career-based loan repayment options that can be found amongst different professions such as education, military, law, nursing, and more. There are also some companies that offer their employees support with repayment options. Talk to your HR representative to see if there are any options available to you.

Question #5: Does paying off the Parent PLUS Loan lower my credit score?

Any line of credit will affect your credit score either positively or negatively. Because a student loan like a Parent PLUS Loan may be the oldest line of credit under your name, closing it may temporarily decrease your score. This should only last for a short while, so rest assured knowing that you did the right thing by closing it and you can celebrate this loan being paid off!

We hope that Uprooted Academy has provided some helpful strategies for you to approach the financial aspect of the college process. Please be sure to also check out our helpful infographic on Preparing for Financial Aid.

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