Borrowing student loans is a common practice to afford educational expenses. That said, deciding which option is best can be a difficult decision to make. In the debate of student loan vs. parent loan, here’s what you should consider.
What to Consider Before Pursuing Loans
Before considering any loan, maximize all available financial aid. This includes scholarships, grants, and work-study. Both scholarships and grants are free aid, which means you won’t have to pay it back down the line. Work-study, on the other hand, is earned aid, meaning your child will have to work to receive the funds.
Only after exhausting all free and earned aid options should you consider borrowed money. When you do get to the point of considering loans, consider both a student loan and parent loan to determine which is better for you.
>> MORE: The different financial aid options for students
Student Loan vs. Parent Loan: What’s the Difference?
The main difference between a student loan and a parent loan is who borrows the loan. A student loan is borrowed by a student, while a parent loan is borrowed by a parent.
While parents can cosign a student loan, the student remains the primary borrower. This distinction determines who is ultimately responsible for the loan, at least on paper. Plus, for whoever’s name is on the loan, their credit score and history will be affected.
With that in mind, there are three main ways you can go about borrowing a loan:
>> MORE: Will my credit score drop after paying a student loan?
Loan Options As a Parent
(Option 1) Student Borrows the Loan By Themselves
| Pros | Cons |
| Your student opens their (possibly) first line of credit and begins to build their credit score and history. | Your student could potentially receive unfavorable loan terms because they do not have a strong credit history (or a credit history at all), or they may not qualify for the loan at all. |
| Your student becomes financially responsible and builds financial skills necessary in the real world. | Your student takes on new outstanding debt, which could impact their credit score and chances of being able to buy a house or open new significant lines of credit in the future. |
What is the Best Student Loan Option for my Child?
If your child decides to borrow a student loan, consider federal loan options first. Experts recommend maximizing federal aid options before pursuing private options due to federal benefits like flexible repayment options, potential loan forgiveness, and strong borrower protections.
Additionally, federal student loans tend to have lower interest rates than private student loans and don’t require credit checks for students. This often makes federal student loans more affordable and accessible than private student loans.
While private loans are a good option, federal options should be pursued first.
>> MORE: Compare the best private student loan rates:
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(Option Two) Student Borrows the Loan and You Cosign
| Pros | Cons |
| Your student receives better loan terms because you, a creditworthy borrower, have cosigned the loan. | Cosigning a loan can increase your debt-to-income ratio, reducing your chances of opening new lines of credit. |
| Your student begins to build their credit score and history. | Any late or missed payments will negatively impact your credit history and the student’s credit history. |
| Your student becomes financially responsible and builds the financial skills necessary in the real world. |
Should I Cosign for My Student’s Private Loan?
You should only cosign your child’s private loan if you are in a financial place to do so. As a cosigner, you are equally responsible for the loan. So, in the event that your child fails to make a payment, you’ll need to be able to make it.
Before you cosign your student’s private loan, be sure to read the fine print of the loan terms. Consider the following questions: Are there cosigner release terms? What will happen to the loan if you go bankrupt or default on it?
>> MORE: Does cosigning a student loan affect my credit score?
(Option Three) You Borrow a Parent Loan
| Pros | Cons |
| You receive more favorable loan terms because you have a stronger credit score and history than your student. | Your student is not building their credit score and history from managing outstanding debt. |
| You protect your student’s credit history from having outstanding amounts of debt, which can help them when applying to open lines of credit in the future. | You are 100% responsible for paying the student loan debt (on paper). |
What Parent Loan Options Do I Have?
As a parent borrower, you have two loan options:
Federal Parent PLUS Loan
The federal Parent PLUS loan is designed for parent borrowers. While a credit check is required to be eligible, you can add an endorser if necessary.
If you are a creditworthy borrower, you may find that the interest rate for the Parent PLUS loan is higher than what you qualify for with a private lender. In that case, a Parent PLUS loan may not be the better loan option.
>> MORE: Everything you need to know about a Parent PLUS loan
Private Loan
Private loans are offered by private companies like banks and credit unions. To qualify for a private loan, you will need a relatively strong credit score and history. Depending on your qualifications as a borrower, you may receive competitive loan terms.
>> MORE: Best college loan rates for parents:
The latest rates from Sparrow’s partners
See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
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Is It Better to Get a Student Loan or a Parent Loan?
Between student loans and parent loans, the option ultimately depends on your family’s financial situation and what works best for you and your student. Therefore, it is important to explore your loan options to find the best one on the market.
The most important thing about this process is making sure that looking for a loan is a collaborative process between you and your child. You will want to reinforce the importance of student borrowing and the responsibility that comes with loans from the onset so that your child learns important financial skills that will last them a lifetime.
Closing Thoughts From the Nest
While comparing a student vs a parent loans may be a tedious process, it is an important decision that will affect either you or your child’s finances for the foreseeable future. Perform due diligence and use the situation as a learning opportunity for your child.
If you are looking for private student loans, consider exploring your options with Sparrow. If you submit a free application with Sparrow, you can compare what private loans you qualify for across 15+ different lenders.