Parent Financing
When parents are determining how to finance their son or daughter's higher education, it is important to know that there is not one best method or a "one size fits all". The final choice will vary from family to family depending on their circumstances. There are a number of potential options, which may include home equity loans, IRA withdrawals, cashing investments or participating in Northwestern's 9-pay payment plan.
Many parents will also consider borrowing a parent loan, such as the Federal Direct Parent Loan for Undergraduate Students (PLUS). When evaluating loan options, it is important to determine the amount of debt you are willing and capable of incurring. Important factors to include are current debt obligations, current household expenses and anticipated borrowing for the student in subsequent years and whether or not you are able to begin making payments while the student is enrolled. The following information has been developed to help families as they begin to make these important financial decisions. Parents can also visit the Department of Education's Financial Preparation website when weighing the pros and cons of the different financing options. Here they describe some options families may choose and outline the important considerations families should evaluate before making these decisions.
Federal Direct PLUS Loan
- Borrower: Parents with satisfactory credit history.
- Loan amount: Up to the cost of attendance, minus any other aid the student has received. Note that a 4% origination fee will be deducted from each loan disbursement.
- Application Process: Parents should complete the PLUS Loan MPN. A credit check will be required.
- Interest Rate: Fixed at 7.9%. Interest is charged on the loan from the date that the first disbursement is made.
- Repayment: Repayment of the principal begins within 60 days of the final disbursement of funds of the academic year. A minimum payment of $600 per year is required, and the borrower has a maximum of 10 years to repay the loan. Parents may choose to defer payments on a PLUS Loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest can either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly. In order to assist you with your planning, the Department of Education provides very helpful budget and repayment calculators.
- More information about the Federal PLUS Loan
NU Loan for Parents
- Borrower: Parents with satisfactory credit history.
- Loan Amount: The NU Loan can be borrowed up to the cost of tuition. Once the NU Loan has been exhausted, the NU Supplemental Loan can be borowed up to the cost of attendance, minus any other aid the student has received. There are no application or origination fees are associated with the NU Loan.
- Interest Rate: Variable. The NU Loan interest rate for 2011-12 is 6.5% and 7.0% for the NU Supplemental Loan. Interest is charged on the loan from the date that the first disbursement is made.
- Repayment: Repayment of the principal begins within 45 days of the initial disbursement of funds of the academic year. Deferment of the NU Loan while the student is enrolled is not available.
- More information on the terms and conditions of NU Loan and application information is available on the Student Financial Services website. Please note that the interest rates for the upcoming year are announced during the summer prior to the academic year.
- More information about applying for the NU Parent Loan
Private Educational Loans
- Borrower: Student is the borrower, but the parent can be a co-signer to secure a lower interest rate.
- Loan Amount: Up to the cost of attendance, minus any other aid the student has received.
- Interest Rate and Repayment: Varies.
- More information about private educational loans
While our office strongly encourages families to exhaust their federal loan options first, some parents consider private educational loans as an option. A lower interest rate can sometimes be secured if the parent is willing to co-sign the loan for the student. Unlike federal loans, the terms of private loans are set by the individual lenders. The interest rate and fees are determined by your credit history, your debt-to-income ratio and that of the co-signer. The interest rates for private educational loans can be both fixed or variable and are most often based on a range using Prime or the London Interbank Offered Rates (LIBOR) as a base and add an additional percentage based on the borrower's credit.
Tax Benefits for Educational Expenses
There are a variety of tax credits, deductions available to assist families with the expense of higher education, including the American Opportunity Credit and Lifetime Learning tax credits, the Tuition and Fees Deduction, the Student Loan Interest Deduction. To learn more about these programs, please visit the Department of Education's Tax Incentives website. The IRS also provides helpful information in their summary Tax Benefits for Education.
More Information
In addition to the resources listed above, we also encourage parents to visit the Financial Literacy and Education Commission's (FLEC) financial literacy education website, www.MyMoney.gov. This site offers interactive features and utilities intended to provide more resources to Americans seeking information that can help inform their personal financial decisions, including calculators and checklists to help families with savings and preparation for college.
