If you have good credit, cosigning a student loan with your child could be another way to help them pay for college. Cosigning a student loan lets your child benefit from your good credit. Withdrawing early leads to taxes and penalties, which can easily eat up a big chunk of what you take out. If you miss payments on this type of loan, you could lose your house! Paying for college is a long-term process that starts with smart financial decisions.
However, your family decides to cover the cost of college, take the time to teach your kids about student loans and the realities of making monthly payments for a decade or longer. If you decide that a private student loan is a good move, remember to consider as many lenders as possible to find the right loan for you. Credible makes this easy — you can compare multiple lenders, all without affecting your credit score.
See Your Rates. Advertiser Disclosure. Here are four ways to help your student with college expenses: Set up a savings account early on Help your student fill out the FAFSA Take out a parent loan Cosign a student loan with your child 1. Look for a high-yield savings account to get the best interest rates. Each state sponsors its own plan , though some states also allow out-of-state applicants.
Will you have an emergency cushion? Can you accept the risk? Taking on a parent loan could jeopardize your credit or ability to borrow for something else. If your own finances are solid and you can afford to help pay for college, you may decide to take on a parent loan. Before you borrow, consider these tips to avoid taking unnecessary risks with your own finances.
Turn to private loans only after your family has exhausted grants, scholarships, savings earmarked for school, work-study and federal student loans. The higher your income, the less free aid your child will receive. If you opt not to help pay for school, less free aid means your child may have to take on more loans to fill the gap. And if your child is under 21, he or she will likely need a co-signer — only a few lenders make loans to borrowers with no credit history and no co-signer.
Co-signing a loan will also impact your credit history, and may make it more challenging for you to take on other loans or lines of credit. The only way to get your name off a co-signed loan would be paying off the debt; taking advantage of co-signer release after a period of time if your lender offers it; or by refinancing. Your best option is to exhaust all other financial resources before borrowing a private loan.
If you co-sign a loan, discuss the seriousness of the debt with your child. If you do co-sign a loan, make sure there is a co-signer release policy. For the latest business news and markets data, please visit CNN Business. Sure, the financial aid system is complex and tuition gets more expensive every year.
But the good news is that parents aren't footing the entire bill themselves. In fact, nearly half of students received some kind of scholarship last year, according to a new survey from Sallie Mae. For most families, that free money covered a significant amount of the bill.
There are three main funding sources families draw on to cover the cost: scholarships, income and savings, and loans. Each source covered roughly one-third of the bill for tuition, fees, and room and board. Luckily, the largest source of money was scholarships and grants -- which do not have to be paid back. Most students borrowed from the federal government's low-interest student loan program.
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