2026 Should Parents Take Out Loans for College?

by Alex Hillsberg , MA

Student Finance & Loan Expert

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Imagine a family balancing rising living costs with a child's desire for a quality college education. The growing expense of tuition often forces parents to consider loans as a means to bridge funding gaps. However, borrowing can bring long-term financial strain and affects family stability. Deciding whether to take out loans involves evaluating current finances, future impact, and alternative funding options.

This article examines the pros and cons of parent loans for college, helping families weigh the financial implications and make informed decisions about supporting higher education without jeopardizing overall financial health.

Should parents borrow for college or have students take loans in their own names? 

Parents must carefully consider whether to borrow for college or have students take loans in their own names, as these parent vs student college loan borrowing options come with distinct repayment responsibilities, credit impacts, and effects on financial aid. Parent loans, such as federal Parent PLUS or private loans, require parents to assume full repayment liability, often with higher credit score requirements. This safeguards the student's credit history but may place direct financial strain on the family.

Student loans, including federal Direct Subsidized and Unsubsidized Loans, are in the student's name, making them legally responsible for repayment. This can benefit parents who want to avoid additional debt but may limit borrowing capacity and affect the student's credit earlier. Students also gain access to income-driven repayment plans and loan forgiveness options not always available with parent loans.

According to College Board Research, parents and students borrowed $102.6 billion federally and nonfederally for the 2024-25 academic year, reflecting the significant burden families bear. When weighing the pros and cons of parent loans versus student loans, families should consider:

• Parents' credit standing and repayment ability versus the student's future earnings potential.
• Loan interest rates, generally higher for Parent PLUS and private loans than federal student loans.
• How parent loans affect family financial aid eligibility, potentially raising the expected family contribution (EFC).
• Access to borrower protections, with student loans typically offering more flexible repayment options.

Families with steady income and strong credit might lean toward parent loans to ease the student's debt post-graduation. Conversely, students with good income prospects may prefer to take loans themselves to build credit and qualify for favorable repayment plans. For details on using federal student aid, students should be informed about options including student loans for rent.

How do federal Parent PLUS loans work and who is eligible to use them? 

The federal Parent PLUS loan program allows parents of dependent undergraduate students in the United States to borrow up to the full cost of attendance minus other financial aid. Parents must meet eligibility requirements, including U.S. citizenship or eligible non-citizen status and a satisfactory credit history, as parent plus loan eligibility requirements in the United States emphasize creditworthiness. Unlike student loans, these loans require the parent-not the student-to apply and assume repayment responsibility.

Repayment starts immediately after loan disbursement, although parents may request deferment while the student is enrolled at least half-time. Interest rates are fixed and currently around 8.05%, higher than many federal student loans. Borrowers must pass a credit check, but poor credit can be addressed with an endorser or a successful appeal.

Parent PLUS loans help families cover gaps when other financial aid and student loans don't fully meet college expenses. For instance, a family with a $30,000 annual bill after scholarships might rely on a Parent PLUS loan for the remainder. Parents considering borrowing should balance the educational benefits against the risk since the debt legally belongs to them, potentially impacting credit scores and retirement plans.

As of Q4 2023, about 3.8 million Americans owed $112.2 billion in outstanding Parent PLUS loans, highlighting a significant parental debt burden. Parents exploring options should also consider alternatives like ascent private student loans or family contributions when planning repayment affordability.

Are private parent loans or co-signed student loans better for covering college costs? 

Private parent loans generally carry higher interest rates and fewer borrower protections than co-signed student loans. Because co-signed student loans rely on both the student's and co-signer's credit, they often offer lower rates, reducing the lender's risk and saving thousands over the loan term. This difference makes co-signed loans more favorable for college funding compared to private parent loans. Understanding private parent loans vs co-signed student loans for college funding is essential when evaluating borrowing options.

Unlike federal loans, private parent loans lack benefits such as fixed interest rates, income-driven repayment plans, or deferment options. Parent PLUS Loans-a federal option-account for about 6.7% to 7% of total U.S. student debt, but they typically offer less repayment flexibility than student federal loans. Families should also be aware of the co-signer responsibilities and risks, including credit score impact, when choosing loan options.

Some students may not qualify for co-signed loans due to limited credit history, making private parent loans a fallback despite their drawbacks. When comparing the best private parent loans and co-signer options for college costs, consider:

• Interest rates and whether they are fixed or variable.
• Repayment terms and flexibility.
• Co-signer responsibilities and risks, including credit impact
• Potential for loan forgiveness or deferment policies

Parents must evaluate their ability to assume financial risk since co-signing affects credit scores and obligations. For those seeking additional financial support, exploring adult student scholarships can provide valuable assistance in managing college expenses effectively.

How much should parents reasonably borrow for college without risking retirement?

Parents should borrow only what they can repay without risking their retirement savings. Experts recommend limiting college loans to an amount that keeps monthly payments manageable alongside retirement contributions. A safe borrowing limit for parents financing college education is generally no more than 15% to 20% of the total expected college cost. For instance, if a four-year degree costs $100,000, loans should ideally stay between $15,000 and $20,000 to protect retirement funds.

Borrowing beyond these limits often forces families to reduce or delay retirement savings, which can jeopardize financial security later in life. Since families pay nearly half (49%) of college expenses through income, savings, and borrowing, balancing loans with available resources is crucial for financial stability.

Parents should realistically assess how much should parents borrow for college without risking retirement by:

• Estimating monthly loan payments after graduation and comparing them with post-retirement income.
• Prioritizing use of savings or current income before borrowing.
• Considering loan interest rates to prevent excessive debt accumulation.

When borrowing is necessary, federal loans are preferable due to lower interest rates and flexible repayment plans. Private loans often carry higher risks with steeper interest and stricter terms. Exploring scholarships, grants, and work-study programs can reduce loan amounts. For more specific guidance, parents can also review nursing school loan options as an example of targeted borrowing strategies.

What interest rates, fees, and terms do Parent PLUS loans have compared to other options?

Parent PLUS loans carry a fixed interest rate of 8.05%, notably higher than federal student loans for undergraduates, which range from 4.99% to 6.54%. These loans also have an origination fee of 4.228%, deducted upfront, compared to about 1.057% for Direct Subsidized and Unsubsidized Loans. Unlike student loans that offer a six-month grace period after graduation, Parent PLUS loans require parents to start repayment immediately after disbursement.

This combination of higher rates and fees makes Parent PLUS loans less attractive than private education loans or federal student loans in the student's name. Private loans might offer better rates for parents with strong credit but usually lack federal protections like income-driven repayment plans or deferment options.

Approximately 30% of families skip the FAFSA application, missing out on free federal aid and increasing reliance on costly Parent PLUS or private loans. Higher interest rates and upfront fees boost the overall borrowing cost for parents. Completing FAFSA and exploring subsidized loans for students can reduce the need for high-cost loans.

Parents should consider alternatives such as private loans with competitive rates or federal student loans before choosing Parent PLUS loans, weighing credit qualifications and repayment abilities carefully.

How do repayment options for Parent PLUS loans differ from student loan repayment plans?

Parent PLUS loans differ from standard student loans because they are taken out in the parent's name and provide fewer repayment options. Unlike many student loans that offer a six-month grace period, repayment for Parent PLUS loans begins immediately after disbursement, meaning parents start payments while the child is still in school.

These loans have a 10-year standard repayment term, but borrowers can consolidate them into a Direct Consolidation Loan to access extended repayment plans lasting up to 25 years. Income-driven repayment (IDR) plans, commonly available to student borrowers, generally do not apply to Parent PLUS loans unless consolidated. Post-consolidation, the loan may qualify for the Revised Pay As You Earn (REPAYE) plan, capping payments at 10% of discretionary income and allowing loan forgiveness after 20 or 25 years.

Parent PLUS loans offer limited deferment or forbearance options, mainly granted only for economic hardship or unemployment. This limitation can create financial strain for parents balancing loan payments along with other responsibilities.

For example, monthly payments on a $40,000 Parent PLUS loan are often higher than those on income-driven student loans for the same amount. Since undergraduate borrowing has declined-from 50% in 2010-11 to 38% in 2020-21 according to NCES-parents should carefully evaluate the sustainability of taking on Parent PLUS debt given these repayment constraints.

Can Parent PLUS or private parent loans qualify for forgiveness, IDR, or consolidation benefits?

Parent PLUS loans are federal loans parents use to assist with their child's college expenses. These loans are not eligible for income-driven repayment (IDR) plans, which means they don't qualify for direct IDR forgiveness benefits. However, parents can consolidate Parent PLUS loans into a Direct Consolidation Loan, which may then become eligible for Public Service Loan Forgiveness (PSLF) if employment and payment requirements under a qualifying repayment plan are met.

Private parent loans do not qualify for federal forgiveness, IDR plans, or consolidation through federal programs. These loans are managed by private lenders, who set their own terms and repayment options without federal protections.

Key considerations for families include:

• Parent PLUS loans can be consolidated for PSLF eligibility but require strict adherence to payment and employment conditions.
• Private loans lack federal borrower protections and forgiveness options.
• Borrowing strategies should reflect these limitations and repayment realities.

The average annual undergraduate loan amount has declined, dropping approximately 8% from $8,400 in 2010-11 to $7,700 in 2020-21 (2021-22 dollars), according to NCES data. This trend may influence borrowing needs and decisions.

What alternatives to parent loans can reduce the need to borrow for college? 

Scholarships, grants, work-study programs, and federal student loans in the student's name can reduce reliance on parent loans for college funding. Scholarships and grants offer free aid based on merit, financial need, or specific criteria such as field of study, significantly lowering education costs when students apply to multiple opportunities.

Federal Direct Subsidized and Unsubsidized Loans typically have lower interest rates and more flexible repayment terms than Parent PLUS loans. They also help students independently build their credit history. Work-study programs allow students to earn money through campus jobs, reducing their out-of-pocket expenses while gaining valuable work experience.

Families can save in advance using 529 college savings plans and prepaid tuition plans, which offer tax advantages and help avoid debt if started early and funded consistently. Income Share Agreements (ISAs) provide another option where repayment is based on the student's future income instead of a fixed loan amount, potentially easing debt burdens if initial income is low.

Financial counseling services at many colleges guide families in navigating aid options and managing budgets to minimize borrowing. It's important to note that Parent PLUS loans disproportionately affect Black families-25.9% of Black bachelor's students had a parent take out such a loan versus 12.6% of white students, according to data cited by BestColleges from NCES.

How do parent loans affect credit scores, debt-to-income ratio, and future borrowing power?

Parent loans, such as the Parent PLUS loan, directly impact credit scores and debt-to-income (DTI) ratios because the debt appears on parents' credit reports. Maintaining timely payments can improve credit history, but missed payments may significantly lower credit scores. Unlike student loans, parent loans rarely offer income-driven repayment plans, which increases the risk of falling behind and damaging credit standing.

High loan balances raise the DTI ratio, a key metric lenders review when considering mortgages, car loans, or new credit lines. For instance, the average Parent PLUS loan for Black families was $33,440 in 2019-20, approximately 61% of their average income, which can heavily restrict future borrowing capacity and affect loan approval odds or interest rates.

Key impacts to keep in mind include:

• Higher DTI ratios may result in loan rejections or less favorable interest rates.
• Parent loans stay on credit reports until fully paid, influencing credit mix and duration.
• Large monthly payments reduce disposable income and overall financial flexibility.

Parents should evaluate their ability to manage these loans carefully and may benefit from consulting financial advisors or exploring alternative funding options to protect their credit and financial health.

What steps should families follow to decide whether parents should take on college debt?

Parents considering taking on college debt should first compare the total cost of attendance with expected family contributions and available financial aid. If grants, scholarships, and federal student loans for the student do not fully cover expenses, borrowing should be a last option.

Assess your financial situation by calculating monthly income, existing debts, and emergency savings to determine if additional loan payments are affordable without risking essential expenses. Review loan repayment terms carefully, including interest rates, repayment periods, and options for deferment or forgiveness.

Consider the student's potential earnings after graduation. Those pursuing careers in high-demand fields with median salaries above $50,000 annually may justify reasonable debt better than students entering lower-paying professions. This evaluation helps predict the ability to manage loan repayment.

Default risk is significant; data from BestColleges citing federal sources shows over 10% of Parent PLUS borrowers were in default four years after their child's graduation. This underlines the challenges parents face with repayment.

Explore alternatives such as payment plans from colleges, private scholarships, and state-specific aid. Additionally, working with the student to contribute earnings or savings can lessen the borrowing burden.

Consulting a financial advisor or college financial aid expert can provide personalized guidance tailored to family circumstances and prevent decisions based solely on short-term affordability or emotional pressure.