Private Parent Loans

By Mark Kantrowitz

Private parent loans are non-federal education loans that are borrowed by the parent of an undergraduate student. Only the parent borrower is obligated to repay the debt. (This is in contrast with private student loans, where the loan is borrowed by the student and usually cosigned by the parent.) These loans are similar in concept to the Federal Parent PLUS loan.

Some parents prefer a private parent loan because they are the only borrower. This avoids the need to rely on the student to make the monthly loan payments. Private parent loans are a good option when the student is unlikely to manage the debt responsibly.

List of Private Parent Loans

Lender	Geographic Restrictions	Payment Options During In-School and Grace Periods	Repayment Terms (Years)	Death & Disability Discharge
Alaska Commission on Postsecondary Education (ACPE) (Family Education Loan (FEL))	Alaska	Immediate	10	Both
Brazos Education Lending Corporation	Texas Residents	Immediate	5, 7, 10, 15, 20	Death Only
Citizens Bank		Immediate, Interest-Only	5, 10	Both
Citizens One		Immediate, Interest-Only	5, 10	Both
College Ave (Parent Loan)		Immediate, Interest-Only, Interest-Plus	5-12	Both
Discover Private Parent Loans		Immediate, Full Deferment	15	Both
Education Loan Finance (ELFI)		Immediate, Interest-Only, Fixed ($25/loan), Full Deferment	5, 7, 10
Iowa Student Loan (College Family Loan)		Immediate, Interest-Only, Full Deferment	10 (Immediate, Interest-Only), 15 (Full Deferment)	Both
Kentucky Higher Education Student Loan Corporation (KHESLC) (Advantage Parent Loan)	Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, Wyoming	Immediate, Interest-Only, Full Deferment	10	Both
Rhode Island Student Loan Authority (RISLA)	Rhode Island	Immediate	10, 15 Level, Income-Based	Death Only
SoFi		Immediate, Interest-Only	5, 10

Notes:

• Geographic restrictions require that the borrower to be a legal resident of or enrolled in an eligible college or university in the specified state or states. In some cases, the cosigner, if any, must also be a state resident.
• Repayment terms may depend on the loan balance at the start of repayment.
• Death and disability discharges cancel the remaining debt when the primary borrower dies or becomes totally and permanently disabled. The death and disability discharges do not apply when the cosigner dies or becomes disabled.
• Lender terms and conditions are subject to change without notice. For the most up-to-date information about a lender's products and services, please visit the lender's web site.

Federal vs. Private Parent Loans

Private parent loans compete with the Federal Parent PLUS loans. If the parent has very good or excellent credit, the private parent loan may charge a lower interest rate and lower fees than the Federal Parent PLUS loan.

The main tradeoff between private parent loans and federal education loans, other than cost, is the better benefits associated with the federal loans. But, Federal Parent PLUS loans are not eligible for income-driven repayment plans or public service loan forgiveness, like federal student loans. (There is a loophole that will allow some Federal Parent PLUS loans to qualify for income-contingent repayment, if the loans are consolidated first.) So, the differences between private parent loans and Federal Parent PLUS loans aren't as great as the difference between federal and private student loans. The main remaining differences for parent loans are as follows:

• Death and disability discharges. Federal Parent PLUS loans are cancelled when the borrower dies or becomes totally and permanently disabled, or upon the death of the student on whose behalf the loan was borrowed. Private parent loans are starting to offer similar benefits.
• Forbearances. Federal Parent PLUS loans are eligible for forbearances of up to three years in total duration. Most private parent loans are eligible for just one year of forbearances.
• Deferment. Federal Parent PLUS loans allow full deferment and immediate repayment as payment options during the in-school period. Most lenders of private parent loans do not allow full deferment.
• Credit underwriting. Federal Parent PLUS loans are available to borrowers who don't have an adverse credit history. The credit underwriting criteria for private parent loans are generally stricter, and may also require minimum credit scores, maximum debt-service-to-income ratios and minimum income thresholds.

Other Types of Parent Loans

Other borrowing options for parents include non-education loans, such as a 401(k) loan or a home equity loan or line of credit.

• 401(k) Retirement Plan Loan. A parent may borrow up to $50,000 or half of the vested balance in their 401(k) retirement plan to pay for college. A 401(k) loan offers a low interest rate and is available without regard to the borrower's credit. But, a 401(k) loan must be repaid in 5 years (and within 60 days of job loss), the loan is treated as taxable income if not repaid (and may be subject to a 10% tax penalty if the parent is under age 59 1/2), and the interest is not tax deductible. The 401(k) loan is repaid from after-tax dollars, leading to double-taxation on the loan payments when the borrower retires. Borrowers cannot make further 401(k) contributions until the 401(k) loan is repaid in full, missing out on the employer match on contributions to the employee's 401(k).
• Home Equity Loan or HELOC. Parents who own a home may obtain a home equity loan or line of credit (HELOC). Interest rates are based on the borrower's credit, but tend to be lower because they are secured by the home. If you default on a home equity loan or line of credit, you can lose the home. Home equity loans are preferred, because they usually have a fixed interest rate. But, if the proceeds of the loan are unspent as of the date the Free Application for Federal Student Aid (FAFSA) is filed, they must be reported as an asset on the FAFSA. A home equity line of credit (HELOC) doesn't have this problem, but the interest rates are usually variable. The interest on up to $100,000 in home equity loans and HELOCs can be deducted on the borrower's federal income tax return, but the borrower must itemize to claim the deduction.