Parents of college bound students frequently ask me about prudent ways to finance a college education. Many financially savvy parents are looking for other safe, comparable options beyond the Federal Direct PLUS Loan, also known as the Parent PLUS Loan, due to its escalating rate over the past two years. I always remind parents that there are no magical secrets to paying for college. It generally takes a collaborative approach with financial professionals and advance planning to work through the options to determine the best route.
Foremost, I encourage parents, to establish personal banking relationships early in the college planning, especially if they will require loans to finance the college process. Due to the conveniences of direct deposit, ATM’s, and drive-thru banking, people, in general, no longer build a personal relationship with their banks. Developing a strong relationship with your personal bank and the key people working there, provides another layer of options and analysis for financing the college years ahead. Many banks have developed competitive student and parent education loan programs that are modeled after the federal loan programs. Going into the bank and connecting with the local banking professionals to learn more about the loan options available can be advantageous for families.
Another benefit of developing a banking relationship is understanding personal banking options to financing college, such as home equity lines of credit. While home equity lines of credit are not for every family, those who have built large amounts of home equity, or who own their home and have other savings to safeguard the loan, may find the home equity lines of credit loan more beneficial when compared to the current repayment costs of the Federal Direct PLUS Loan rates.
Some home equity lines of credit now allow a borrower to lock in a fixed rate on their balance three times during a set time period. Having a defined, favorable interest rate and avoiding rate increases could be very valuable in financing the sophomore, junior, and senior year tuition. In contrast, the Federal Direct Loans have interest rates reviewed every spring for a July 1 effective date. It is not uncommon for parents to have multiple Federal Direct PLUS Loans with different interest rates for each year of their child’s college education. Another point of comparison is there may be less loan fees involved in a home equity line of credit. For example, Federal Direct Loans have a loan origination percentage deducted from each loan disbursement whereas home equity lines of credit may require a one-time appraisal fee. As always, the content shared in this blog is for informational purposes and you should consult with a financial professional to ensure that you are making the best financing decision to meet your family’s personal situation.
Campus to Career Crossroads has trusted and experienced partners that can assist families who are exploring college financing, such as the options of personal banking loans and home equity lines of credit. Paying for college is not a one-size fits all approach and requires a collaborative, forward thinking plan for each year of college financing. Please contact Campus to Career Crossroads for a free consultation if you are concerned about financing college now or in the years ahead.