Student Loans vs. Parent Loans

When it comes to paying for a child's college education, many families must weigh taking out student loans vs. parent loans. The decision will require taking into account several factors, including federal vs. private loans, the creditworthiness of the student and parents, whether the loans will qualify for government subsidies, and the plans to pay off the loan after graduation. This article will take you through important variables to help you make a better decision.

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Data source: studentaid.gov. Table source: author.
Year	Dependent Students	Independent Students
First-year undergraduate	$5,500 (no more than $3,500 subsidized)	$9,500 (no more than $3,500 subsidized)
Second-year undergraduate	$6,500 (no more than $4,500 subsidized)	$10,500 (no more than $4,500 subsidized)
Third-year and beyond undergraduate	$7,500 (no more than $5,500 subsidized)	$12,500 (no more than $5,500 subsidized)
Graduate and professional students	N/A	$20,500 (unsubsidized only)
Total loan limit	$31,000 (no more than $23,000 subsidized)	$57,500 for undergraduates (no more than $23,000 subsidized)$138,500 for graduate or professional students (no more than $65,500 subsidized)

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Interest Rate

An interest rate is the cost of borrowing money or the premium you get for lending money. Learn how interest rates affect the economy.

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Refinancing

A financial strategy in which a borrower uses one debt to pay off and replace other debt.

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Private parent student loans

Less common are private parent student loans. These loans are given to the parents to pay for their child's education. They may be a good option for parents with very good credit since the interest rate could be lower than a Direct PLUS loan from the federal government.

Private (parent) student loans may not have an option for deferment or forbearance, so be sure to check with the lender on the terms. If you're unable to keep up with payments, it could be very damaging to your credit.

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Savings Account

A savings account is an account that earns interest with a financial institution.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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