For years, parents have assisted their children in shouldering the increasingly high cost of college: co-signing private student loans, taking part in federal loan programs, and saving for years to contribute. Private student loan lenders have been offering parent loans as an alternative for several years. And now the country’s largest lender plans to enter the fray with its own version.
SLM Corp., also known as Sallie Mae, will rollout its own parent loan next month, the Wall Street Journal reports, in yet another example of how the so-called “bank of mom and dad” is becoming a viable and attractive option for financing higher eduction.
Under the Sallie Mae loan, parents will be able to borrower at interest rates ranging from 3.75% to 13% and will have 10 years to pay off the debt.
“There’s an opportunity to expand our reach,” Charles Rocha, chief marketing officer at Sallie Mae, tells the WSJ.
Parent student loans aren’t exactly a new phenomenon. The federal government has offered such lines of credit through its Plus program for years. Use of the Plus program has increased nearly 20% in the past five years, with parents taking on $10.7 billion in the loans during the 2014-2015 school year.
However, the new private version may be more appealing to parents as they don’t include the hefty 4.3% upfront fee like the Plus loans, the WSJ reports.
In fact, schools like Stanford University have increasingly pushed the private loan option, the college even requested that online lender Social Finance (SoFi) create such a loan in 2014.
A spokesperson for the school tells the WSJ that the loans help parents who are looking for more financing options.
So why would parents want to take out thousands of dollars in loans for their children? The WSJ points out that many parents don’t want their children to leave school with the burden of debt as they did.
Additionally, older adults are generally more creditworthy than students, so parents are able to get lower interest rates.
A Texas mother says she and her husband took out a $40,000 loan from SoFi to help cover their son’s freshman year at Stanford simply so he wouldn’t be burdened by debt.
“My husband and I got out of school with debt,” she said. “It’s a hard way to start life.”
That family certainly isn’t alone. The WSJ reports that the Federal Reserve Bank of New York estimates that student and parent debt totaled $1.23 trillion at the end of 2015. And with more loan offerings out there — or soon to be available — that number is only going to increase.
“Education loans in general, whether for students or parents, are spreading out the costs over time; they are not cutting college costs,” Mark Kantrowitz, vice president of strategy at Cappex.com, a website that connects students with colleges, tells the WSJ.
Squeeze the Parents: New Student Loan Goes Straight to Mom and Dad [The Wall Street Journal]
by Ashlee Kieler via Consumerist
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