If you’re a parent and you have a child that is going to college you may be wondering “what’s the best type of loan to take out for son or daughter’s college expenses? It is smart to borrow a Federal Loan because they are cheaper, more available, and have better repayment terms than private loans. But if your child maxes out their Federal Student Loans, your family still has options to help pay for college.
You can still take out a Parent-Plus loan to help carry the costs, this is a Federal Loan that has a fixed rate of just under 8% and with 4% in fees. The loan is also eligible for the student loan interest deduction which allows you to deduct up to $2,500 a year on your taxes. Private student loans are another option, even though they are usually borrowed by the student, most require a credit worthy cosigner such as a parent and you’re equally obligated to repay that debt that means late payments will be reported on your credit history too.
The other option is a Home Equity Loan or Home Equity Line of Credit, and they may be an option if you have equity in your home. Now home loans may offer interest rates that are competitive with private student loans. But you also need to consider whether there are other ways to saving on college costs such as enrolling in an in-state public college, buying used text books, or taking fewer trips home from school. The bottom line your children’s college debt at the end of their graduation should be less than their starting salary.