what type student loan for parent as cosigner 4 student to be pd interest only principal at end of 4 yrs?
Asked by jedsterI'm looking to build credit for daughter by cosigning student loan for her, but i would like to pay interest only thru her 4 yrs and then pay off in full at end of 4 yrs...does the parent plus loan meet my needs??
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Answered by FinAidGrrl
It's great that you want to help build your daughter's credit. Unfortunately, a PLUS loan can't help you meet this end: The parent -- not the student -- is the primary borrower of a PLUS loan and the only person whose credit is affected by it (approval is based on your credit and the debt will appear on your credit report, not hers). Moreover, there are no Federal student loans on which the parent can co-sign while the student acts as primary borrower (Stafford and Perkins loans don't require a credit check, so while these are in her name and therefore can eventually add to her credit history, they don't help at the moment). In theory, any private educational loan would help build your daughter's credit... Most of them would be in her name and would allow you to co-sign. However, most generic private educational loans tend to be at much higher interest rates, so I hesitate to recommend them. Anytime a parent (who needs a loan) CAN borrow a PLUS, they should go that route first... Federal aid is always your best option... That said, there are a handful of student loan companies out there that offer attractive rates on private educational loans, provided that the co-signer has good-to-excellent credit. Check out MEFA's undergraduate loan as an example -- the credit criteria is tough, but the rates are great, relatively speaking. (MEFA is a Massachusetts not-for-profit that also deals in private loans, which it makes available to all states' residents.) One route you might want to pursue, if you are considering co-signing a private student loan, is to check out companies specific to your state. Just like some states offer lower tuition to their residents, some companies offer special loans to their residents. Vermont and Alaska come to mind as examples of states that offers low-interest student loans to its residents (www.vsac.org). The rates on these loans might come close to the PLUS interest rate (8.5% fixed starting in July). A non-loan option to consider: add your daughter's name to a credit card that you consistently pay in a timely manner. You don't even have to GIVE her the card if you don't want to -- simply having her name on the account will attach the card (and all its payment history) to her credit report. My parents did this for me many (many!) years ago (before I had even finished high school), and, as a result, I had a lengthy credit history well before I needed to obtain new credit on my own.
It's great that you want to help build your daughter's credit. Unfortunately, a PLUS loan can't help you meet this end: The parent -- not the student -- is the primary borrower of a PLUS loan and the only person whose credit is affected by it (approval is based on your credit and the debt will appear on your credit report, not hers). Moreover, there are no Federal student loans on which the parent can co-sign while the student acts as primary borrower (Stafford and Perkins loans don't require a credit check, so while these are in her name and therefore can eventually add to her credit history, they don't help at the moment). In theory, any private educational loan would help build your daughter's credit... Most of them would be in her name and would allow you to co-sign. However, most generic private educational loans tend to be at much higher interest rates, so I hesitate to recommend them. Anytime a parent (who needs a loan) CAN borrow a PLUS, they should go that route first... Federal aid is always your best option... That said, there are a handful of student loan companies out there that offer attractive rates on private educational loans, provided that the co-signer has good-to-excellent credit. Check out MEFA's undergraduate loan as an example -- the credit criteria is tough, but the rates are great, relatively speaking. (MEFA is a Massachusetts not-for-profit that also deals in private loans, which it makes available to all states' residents.) One route you might want to pursue, if you are considering co-signing a private student loan, is to check out companies specific to your state. Just like some states offer lower tuition to their residents, some companies offer special loans to their residents. Vermont and Alaska come to mind as examples of states that offers low-interest student loans to its residents (www.vsac.org). The rates on these loans might come close to the PLUS interest rate (8.5% fixed starting in July). A non-loan option to consider: add your daughter's name to a credit card that you consistently pay in a timely manner. You don't even have to GIVE her the card if you don't want to -- simply having her name on the account will attach the card (and all its payment history) to her credit report. My parents did this for me many (many!) years ago (before I had even finished high school), and, as a result, I had a lengthy credit history well before I needed to obtain new credit on my own.
