Parent Student Loans and More: Your Guide to Subsidized, Unsubsidized, and Private Loans

6 minute read

Navigating the world of student loans can be a challenge, especially for parents who want to help finance their child's education. To help you on this journey, we’re breaking down the choices available to parents, including federal PLUS loans and private loans, so you’re making informed decisions about borrowing for college.

Start With the FAFSA

Before looking into any student loans, parents and students should start with a crucial first step: completing the Free Application for Federal Student Aid (FAFSA). Filling out the FAFSA does the following:

• Eligibility Assessment: It determines the student’s eligibility for different types of financial aid beyond just loans. This could include grants, scholarships, work-study programs, and federal student loans.
• Financial Aid Package: The FAFSA helps schools create a tailored financial aid package for each student, which can include federal, state, and school-based aid.
• Understanding Financial Options: It gives students a clearer understanding of what aid they may qualify for and if they’ll need additional financial resources to bridge the gap and meet the cost of attendance.

Most students will qualify for some type of financial aid, so don’t skip this important step. After financial aid, many students will need additional funds to pay for college. This is when you’ll want to explore your student loan options.

Student Loan Options

When shopping around for student loans, whether you’re a parent or a student, you’ll want to know about two main types of loans — federal loans and private student loans. Interest rates and terms can be different for parents and students depending on the type of loan you choose. First, let’s break down the federal and private loan options for students.

Federal subsidized and unsubsidized student loans

After completing the FAFSA, the U.S. Department of Education may offer students subsidized and unsubsidized loans.

What is a subsidized loan?

Federally subsidized loans are need-based loans for eligible undergraduate students. Do you have to pay back subsidized loans? Yes, but the U.S. Department of Education pays the interest while the student is in school at least half-time, making it a cost-effective choice.

What is an unsubsidized loan?

An unsubsidized loan is more broadly available as it is available to all students regardless of financial need. Do you have to pay back unsubsidized loans? Yes, all loans need to be repaid with interest after the student graduates or is no longer enrolled at least half-time. Unsubsidized loans also accrue interest while the student is in school and during repayment.

Should students choose a subsidized or unsubsidized loan?

For most students, the answer is to accept both types of loans if offered. Subsidized and unsubsidized loans generally have the lowest interest rates and are the best borrowing option for students.

However, these types of loans do have limits. Undergraduates can receive between $5,500 and $7,500 per year in subsidized and unsubsidized loans. If this amount, combined with other financial aid, is not enough to meet the cost of attendance, students can explore private student loans.

Private student loans

Private student loans can be from a lender such as a bank, credit union, online institution, or non-profit lender. Each entity will set its own rates and terms, so it’s important to shop around to find the best option for the student’s financial situation.

Many students don’t yet have the credit history to qualify for some private student loans and may need a co-signer to help their application be approved and get the best rate. This can be a parent or other credit-worthy adult. Parents can also consider taking a parent loan.

Student Loan Options for Parents

Now that you know more about the different federal and private student loan options for students, let’s look at the loan options for parents who want to help fund their child’s education journey. When considering parent-student loans, two primary options emerge: federal Parent PLUS Loans and private loans.

Federal Parent PLUS loans

Federal Parent PLUS Loans are provided by the U.S. Department of Education. However, they don’t have the same low rates as subsidized and unsubsidized loans offered to students. They also include a 4.228% origination fee, which is deducted from the loan before it’s disbursed to the student’s account. Repayment begins and interest starts to accrue as soon as the loan is disbursed, so parents will want to shop around and compare rates before making a final decision.

Many wonder, “What credit score is needed for a Parent PLUS Loan?” While the Department of Education hasn't specified a credit score requirement, they do check for an adverse credit history.

Private Parent loans

Private parent loans from banks, credit unions, and non-profits can offer competitive rates and terms. Just like federal Parent PLUS Loans, repayment begins and interest starts to accrue as soon as the loan is disbursed. Note that some private loans, like the NC Parent Assist Loan, don’t charge fees. So, unlike federal loans, which charge origination fees, you’ll get more money to pay for college. It's important to compare student loan rates across both federal and private offerings to find the most cost-effective option for you.

NC Assist Loan: Bridging the Gap

Paying for college is a significant commitment, but with the right information, it can be a manageable one. Remember, always start with free money options like scholarships and grants before moving on to loans. And if loans become necessary, NC Assist Loan can help parents and students with a North Carolina connection.

Offered by a non-profit lender, NC Assist Loan focuses on providing students and parents with the best options to pay for college by offering loans with competitive fixed rates and comprehensive support. We help families with a North Carolina connection:

• Explore financial aid options, including scholarships and grants, with our scholarship search.
• Understand the differences and terms of any student loan with our Student Loans Glossary.
• Compare student loan rates for federal and NC Assist Loans.
• Estimate the potential monthly payments to help North Carolina families be smart borrowers with our Student Loan Calculators.

Paying for college and higher education can feel overwhelming, but with resources like NC Assist and a clear understanding of your options, you can confidently fund any education dream. Apply for a student loan today with NC Assist Loan.