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Parents who want to help their children pay for college have both federal andย private student loanย options to choose from.
While comparing your options is always important when picking a student loan, itโs especially crucial as a parent. Thatโs because you might have to make a tradeoff when you choose a loan type. Federal parentย PLUS loansย offered by the U.S. Department of Education haveย low interest ratesย and generous repayment terms but high origination fees. Private lenders that make loans specifically to parents may offer lower feesโand potentially lower interest rates for the most creditworthy borrowersโbut far less flexible repayment options.
Below weโve picked the best student loans for parents based on features including interest rates, origination fees and hardship repayment options.
parent loans for college with bad credit
Start with Parent PLUS Loans
If you need to borrow student loans for your child,ย parent PLUS loansย should be one of the first places you look. These federal student loans allow you to borrow money on behalf of your college-attending child. It covers the full cost of attendance minus any other financial aid the student gets, like grants and scholarships.
For manyโespecially those with poor creditโfederal student loans can be a better option than private debt. They are typically easier to qualify for and everyone receives the same interest rates, no matter your credit. They also come with greater protections, such as more flexible repayment options and forgiveness programs.
To qualify for a parent PLUS loan, you must be the biological or adoptive parent of a dependent undergraduate student who is enrolled at least part-time in school. In some cases, a step-parent may also qualify.
While most types of federal student loans donโt require a credit check, a parent PLUS loan doesโbut thereโs more leeway than you might think. To receive a PLUS loan, you canโt have โadverse credit,โ meaning you canโt have the following on your credit report:
- Delinquent account balances totaling more than $2,085 in the last two years; or the same amount in collections or discharged in the past two years
- A tax lien, foreclosure or repossession in the last five years
- Wage garnishment in the last five years
- Write-off of federal student debt in the last five years
- Accounts that have gone into default in the last five years
If you donโt have much credit to your name or your score is low for other reasons, chances are youโll be approved with ease. Thereโs no minimum credit score requirement, and everyone who qualifies for a parent PLUS loan receives the same interest rate.
If you have experienced credit concerns like those listed above, all is not lost. You might still qualify for parent PLUS loans, but youโll need to take extra steps.
Consider Adding an Endorser
If you canโt qualify on your own, you can add an endorser to your application. An endorser, similar to a co-signer, is someone who doesnโt have an adverse credit history and agrees to repay the loan if the parent canโt. The endorser canโt be the child who is benefitting from the loan, but it can be another family member or close friend.
Becoming an endorser does come with risks: The endorser is legally responsible for repaying the loan if the primary borrower doesnโt, and any missed payments or negative marks will also appear on the endorserโs credit. However, if you canโt qualify for a parent PLUS loan individually, adding a trustworthy endorser could help.
If Youโre Denied, Submit an Appeal
If you meet all other loan requirements and can prove that your adverse credit history is due to extenuating circumstances, you can submit an appeal to the U.S. Department of Education. While approval isnโt guaranteed, an appeal might increase your chances of qualifying.
For example, if you were denied a PLUS loan because you previously had an account in collections, you might win an appeal if you can prove the account has since been paid off or youโve consolidated the debt and have a record of recent on-time payments. See more examples of how you might appeal an adverse credit history on the Federal Student Aid site.
If you end up getting an endorser or successfully submitting an appeal, you will need to complete a 30-minute credit counseling session online before the funds are disbursed.
Look to Private Student Loans Next
If you donโt qualify for parent PLUS loans, considerย private student loans for parentsย with bad credit. Private student loans are administered by institutions like banks, credit unions and online lenders. Some private lenders offer parent-specific student loans, but in other cases, private student loans can be taken out by the student and co-signed by a parent or other adult.
For private lenders, a strong credit score and history are a major part of eligibility. If you apply with poor credit, you may not qualifyโor if you do, youโll likely face higher interest rates than you would with federal student loans. If you donโt have enough credit to qualify, you can add a co-signer with good credit to your application.
When shopping for private student loans, itโs a good idea to compare lenders and their requirements. Many lenders allow you to prequalify before completing a full application, so you can see if you might be eligible for a loan before you commit to anything. Since there are no universal standards among private lenders, you might need to take this step with several companies to find a loan youโre eligible for.
best parent student loans
4 Alternatives to Student Loans for Parents With Bad Credit
Having bad credit makes it harder to borrow money. If youโre trying to secure loans for your childโs education and are running into problems, there are some things you can do.
1. Look to Grants and Scholarships
Grants and scholarshipsโfree money that doesnโt need to be paid backโshould be used before taking out any type of loan. The more free money your child gets, the less money theyโll need to borrow (and pay back).
There are loads ofย scholarship and grant databasesย that house billions of dollars of awards. Search for various types of awards based on the studentโs race, gender, socioeconomic background, field of study and even general interests.
2. Help Your Child Apply for Loans
Students generally haveย more options to borrow for collegeย than their parents doโand many lending products for students are designed for borrowers with little to no credit. That means itโs likely easier and cheaper for your child to borrow money for their own education.
For example, most undergraduate students are eligible forย subsidized and unsubsidized federal student loans, which have a fixed interest rate of 3.73% for the 2021-22 school year. These loans require no credit checks, donโt enter repayment until after the student leaves school and have flexible repayment plans that can be based on the studentโs post-college income.
If you think youโll have trouble qualifying for a parent student loan, help your child research the options available to them. There will likely be more lending opportunities to choose from at lower rates than a parent with poor credit might find.
3. Work to Boost Your Credit Score
If youโre determined to borrow parent student loans,ย increase your creditย as much as possible before applying. You can do things like:
- Review your credit report for errors.ย Review your credit report and check it for accuracy. If you find mistakes that are hurting your score, you can submit a dispute with the credit bureau involved. The bureau will investigate the claim to determine if itโs an error, and if it is, the offending mark will be removed.
- Pay off old debt.ย If youโre behind on payments, consider paying off any old debt you can. Whether itโs an overdue hospital bill or credit card, this is one way to get your score to rebound. You might find that lenders are willing to work with you on a new payment plan if it means they get some money back.
- Lower your credit utilization.ย Yourย credit utilizationโalso known as your debt-to-credit ratioโmakes up a significant portion of your credit score. In short, it measures how much of your total credit limit you are spending each month. If possible, keep your credit utilization below 30% to help your credit.
4. Consider Other Ways to Help
If youโre struggling to find ways to pay for your childโs school, see if you can help in other ways. For example, you can reduce college costs by allowing your child to live at home while theyโre in school. If you think your child should qualify for more financial aid, you can help themย submit an appealย for more money.
If youโve exhausted your other funding options, consider asking family or close friends to contribute to the costs of college as a last resort. While this isnโt an option for everyone, lean on your network if youโre lucky enough to have family with means.
Before any money changes hands, set up a written agreement (and repayment plan, if necessary) that works for everyone. This can help ensure everyone understands the expectations and reduce misunderstandings later.
Student Loans Are One OptionโBut Not Your Only Choice
While loans are helpful for many students, other funding opportunities should be maxed out first. Parents can help their children get all the free money they can by submitting theย Free Application for Federal Student Aidย (FAFSA) as early as possible and applying for individual grants and scholarships.
Once that funding has been exhausted, consider federal student loans to cover additional costs. If you still need more money after that, consider private student loans as a final option.
Tips for Comparing College Loans for Parents
Your first task is to decide whether a federal or private parent loan is best for you. If you need federal loan protections, or if you have damaged credit, a PLUS loan is likely a better choice.
The federal government conducts credit checks on PLUS loan borrowers, but there are specific negative marks itโs looking out for. The government will consider you to have โadverse credit historyโ if you have one or more of the following on your credit report:
- Debts totaling more than $2,085 that are at least 90 or more days past due or that were in collections or charged off in the past two years
- Within the past five years, a:
โ Default determination
โ Bankruptcy
โ Foreclosure
โ Repossession
โ Tax lien
โ Wage garnishment
โ Charge-off of a federal student aid debt
But if you learn you have an adverse credit history after you apply, you can explain the circumstances that led to it, and the government could determine that youโre eligible for a PLUS loan after receiving loan counseling. Another option is to get an endorser, similar to a co-signer, that can help you qualify. Finally, your child can qualify for additionalย federal direct unsubsidized loansย to help them pay for school if you canโt get a parent PLUS loan.
If youโve decided to take out a private student loan, parents generally have stronger credit than undergraduate students who havenโt had time to build their own credit histories. That means that in lendersโ eyes, theyโre less risky borrowers than students, and receive interest rates to match.
But when comparing interest rates among lenders, know that only the borrowers with the highest credit scores, least outstanding debt and strongest incomes will get the lowest rates. Also, all rates listed here include a standard 0.25% interest rate discount for using automatic payments.
Itโs best to identify the interest rate and terms youโd receive on a private loan, then compare the overall cost and features with those of a PLUS loan. Aย student loan calculatorย can help you determine how much youโll pay over time.
Methodology
We collected data from the seven largest student loan entities that offer parent loans in at least 25 U.S. states and scored them across 10 data points in the categories of interest rates, fees, loan terms, hardship options, application process and eligibility. We chose the five best to display based on those earning three stars or higher.
The following is the weighting assigned to each category:
- Hardship options: 20%
- Interest rates: 20%
- Application process: 20%
- Loan terms: 15%
- Fees: 15%
- Eligibility: 10%
Specific characteristics taken into consideration within each category included number of months of forbearance available, hardship repayment options beyond traditional forbearance, origination fees, availability of a post-school grace period and other factors.
Lenders who offered maximum interest rates below 12% scored the highest, as did those who offered more than the standard 12 months of forbearance, who offered interest rate discounts beyond the standard 0.25% for automatic payments, who charged no origination fees and who offered multiple loan terms maxing out at 15 years.
In some cases, lenders were awarded partial points, and a maximum of 3% of the final score was left to editorial discretion based on the quality of consumer-friendly features offered.
Compare Personalized Student Loan Rates
What Is a Parent PLUS Loan?
The Federal Student Aid office has two types ofย PLUS loans: one for graduate students and one for parents. A parent PLUS loan offers money to help pay for your childโs undergraduate education. Biological and adoptive parents are eligible, and in some cases, stepparents may also qualify. Approved borrowers canโt have an adverse credit history and you must also meet the general eligibilityย requirements for federal student aid.
Because PLUS loans are federal debt, they come with more flexible repayment options. You may also find that these loans offer lower interest rates than private loans, especially for applicants with less-than-perfect credit.
Applying for Parent Loans for College
The process to apply for a parent college loan depends on the type of loan you choose. Parent PLUS loans are federal debt and have a slightly simpler application process. Thereโs more variety when it comes to private parental loans, however, so youโll need to do some research before submitting your application.
How to Apply for a Parent PLUS Loan
The first step to apply for any type of federal student loan is to complete theย Free Application for Federal Student Aidย (FAFSA). Your child should submit the FAFSA every year, since it allows them to access federal financial aid, as well as any additional aid provided by their college or other organizations. If your child is a dependent, youโll also need to provide your information on this form each year.
Once thatโs done, you can apply for a parent PLUS loanย using the online application, which takes about 20 minutes to complete. Youโll fill in some basic information about yourself, your employer and your childโs school. If youโre approved, youโll sign the required paperwork and the money will be distributed directly to your childโs school. If any funds are leftover, the remaining amount will be sent to you (or your child, if you choose).
How to Apply for a Private Parent Loan
Itโs wise toย shop around for private parent loansย before you submit a formal application. You can quickly get estimated rates by visiting each lenderโs website and completing a short form.
However, each lender has its own credit and income requirements to approve borrowers. If youโre looking forย student loans for parents with bad credit, read the lenderโs eligibility requirements to make sure you can qualify. If you canโt qualify on your own, it might make sense toย add a co-signerย to your application.
If you find a few lenders that offer you good deals, you can submit a formal application online. Youโll input your personal details and financial information, including your income, savings and debts. Once the lender reviews your application, they will present you with the details of the loan for which youโve been approved. Review the final rates and terms, and if all is correct youโll sign the loan agreement. Funds are typically distributed directly to your childโs school, with any remaining money sent to you.
Parent PLUS Loan vs. Private Loan
Parent PLUS loan | Private parent loan for college | |
---|---|---|
Interest rate | 6.28%* | Varies; can range from 1-12% or more |
Rate types | Only fixed rates | Fixed or variable rates |
Origination fee | 4.228%** | Many lenders donโt charge origination fees |
Loan amount | Up to the cost of attendance | Up to the cost of attendance |
Repayment period | 10-25 years | Varies; typically 5-20 years |
*For loans disbursed between July 1, 2021, and before July 1, 2022 | ||
**For loans disbursed between Oct. 1, 2021 and Oct. 1, 2022 |
Parent borrowers with excellent credit and a healthy, stable income may find better rates and fewer fees with private lenders. However, if you have fair or average credit, a parent PLUS loan could be a better option, even with the added origination fee. If you value more flexible repayment options, a PLUS loan could be good as well, since repayment options vary with private loans.
And if you, the parent, work for a government agency or nonprofit or may have difficulty making loan payments in the future, consider a federal PLUS loan. Thatโs because youโll have access to theย Public Service Loan Forgiveness (PSLF) programย and monthly loan payments tied to your income (after signing up for the federalย income-contingent repayment plan).
Frequently Asked Questions (FAQs)
Who should choose a private parent loan?
If you wonโt need access to federal repayment programs, you can qualify for a low interest rate, or youโll be able to pay off the loan fast and avoid high interest charges, a private parent loan could be a good option. Just make sure to understand your lenderโs policies in case you experience an unforeseen financial hardship in the future.
How is the interest rate on a parent loan determined?
All federal parent PLUS borrowers get the same rate, which is determined by Congress, if they qualify. PLUS loans require a credit check, but it is more limited than the check private lenders perform.
Most private lenders tie your interest rate to your credit history and income. Parents often have stronger credit than their undergraduate children, so they may qualify for lower interest rates on private loans as the primary loan borrowerโbut not always.
Itโs best to compare interest rates across not only parent PLUS loans and private parent loans, but also with federal direct subsidized and unsubsidized student loans. In 2020-21, federal student loan interest rates are at record lows, and if your child borrows on their own behalf, you wonโt be responsible for payments in the future. Make sure your child maxes out their own federal loans first before you consider taking out a parent loan.
Will parent PLUS loans be forgiven?
Certain borrowers may qualify for parent PLUS loan forgiveness, though the process isnโt a simple one. Parent borrowers may qualify to have their loans discharged through eitherย PSLFย or income-contingent repayment. These programs require 10 to 25 years of repayment, after which time the remaining balance can be forgiven. You may also be required to convert your PLUS loan into aย direct consolidation loanย before youโre eligible.
Can a parent PLUS loan be transferred to the student?
There is no federal program that allows you to transfer parent PLUS loans into the studentโs name. However, some private lenders allow the student to refinance their parentโs loan into the studentโs own name. Student borrowers should be cautious with this method, though, since refinancing federal loans will turn them into private debt, which generally offers fewer protections.
What if I can’t pay my parent PLUS loan?
Parent PLUS loan borrowers have fewer options when it comes to flexible repayment plans. However, if your monthly payments are too high, you could opt forย graduatedย orย extended repayment. If youโre willing to transfer your PLUS loan into a direct consolidation loan, you could also consider income-contingent repayment. All of these options can lower your monthly payments but will result in more interest being paid over time.
If you need to pause your payments, PLUS loans are eligible for the federalย forbearance or deferment. However, interest will continue to accrue while your debt is on pause.
What happens to my parent PLUS loan when I retire?
Your retirement has no effect on your parent PLUS loan and youโll be expected to make payments as usual. However, if youโre enrolled in income-contingent repayment, the amount you owe each month is determined by your income. Once you retire, your earnings may go downโin that case, your loan payment would decrease as well.
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