New loans offer a cheaper way to finance a child's education. But they can also risk a parent's retirement nest egg.
Private college loans made to parents — rather than to students — are a budding reality.
They can provide a cheaper way to finance a child’s education than federal student loans, CBS MoneyWatch reports. But they can also risk a parent’s retirement nest egg.
Lenders ranging from Sallie Mae, which is formally known as SLM Corp., to online lender Social Finance are either preparing to roll out or already have started offering private loans to parents.
They can be cheaper in terms of interest. The Wall Street Journal reports Sallie Mae will start offering a loan to parents next month that will have interest rates as low as 3.75 percent for parents with good credit scores. By contrast, federal PLUS loans have a rate of 6.84 percent.
However, CBS reports:
The bottom line for parents, though, may be unchanged: Focus on your own retirement, rather than financing your child’s college degree. After all, lenders aren’t interested in helping you out in retirement, and most Americans are already poorly prepared for their golden years.
Social Finance launched a private loan for parents in 2014 because of a request from Stanford University, which told The Wall Street Journal it was trying to provide other financing options for parents. Two other prestigious universities, Boston College and Carnegie Mellon University, are also among those that are referring parents to private loans.
Nate Matherson, co-founder and CEO of LendEDU, tells CBS:
“Only use these loan products if you can save money versus the federal PLUS loans. I don’t think student financial aid offices should be pushing these products. They should stay unbiased and act as an informational source.”
What’s your take on this news, parents? Would you consider taking out a private loan to spare your child the cost of taking out a federal student loan? Let us know what you think below or on Facebook.