PDF Why Parents Choose Private Student Loans - Sallie Mae

Why Parents Choose Private Student Loans

When a student is accepted to college, it's a proud milestone for parents. But finding a way to finance that education is different for each family.

Recent research with parents conducted by Sallie Mae? has provided insights into their attitudes about Federal Direct PLUS Loans and private student loans. Understanding how parents perceive these two financing options can help you in discussions with families when they turn to you for advice.

Top three reasons parents choose private student loans1

Parents did not want the loan in their name (61%)

Better interest rates, especially with good credit (23%)

More choices and features (13%)

Features of private student loans that parents prefer1

More repayment flexibility

More convenient application process

Easier account management

Federal Direct PLUS Loans versus private student loans

Since parents often face the choice between a Federal Direct PLUS Loan and a private student loan, here are some overall differences.

PLUS Loan for Parents2

Private Student Loan3

Issuer

Federal government

Financial institutions, such as banks or credit unions

Name on the loan

Parent

Student and cosigner

Approval requirements

Parent or endorser must not have an adverse credit history

Generally based on the creditworthiness of the borrower and/or cosigner

Require FAFSA

Yes

No

Choice of interest rates

Fixed rate only

In many cases, both variable and fixed options are available

Fees

Origination/disbursement fees apply

Generally no origination/disbursement fees

Cosigner release

No, the parent, and any endorser, has a commitment to repay the loan for the life of the loan

Yes, many lenders provide a cosigner release option where the student can apply to release the cosigner after he or she graduates, makes a specified number of on-time payments, and meets underwriting requirements

Visit for additional resources or contact your Sallie Mae Account Executive.

Parents' reasons for choosing private student loans

Reluctance for loan solely in their name

Many parents don't want the extra debt in their name that occurs with a Federal Direct PLUS Loan. When a parent cosigns a private student loan, the child is the primary borrower, and the parent may be eligible for cosigner release after a certain number of on-time payments.

Better interest rates

If a cosigner has an excellent credit rating, he or she may help the student qualify for a better interest rate on a private student loan. In addition, most private student loans have no origination or disbursement fees.

More choices and features

Private student loans often provide more options, including a choice of variable or fixed interest rates, and money-saving borrower benefits. Many private loans are available to students enrolled less than half time; federal student loans are only available to students enrolled at least half time.

More repayment flexibility

Parents appreciate the variety of repayment options that private student loans offer, including encouraging payments during the inschool period and offering the flexibility to defer payments.

More convenient application process

With private student loans, completing the FAFSA is not required (as it is for a Federal Direct PLUS Loan). Also, students can apply for private student loans online and receive a response the same day.

Easier account management

Private student loans can be accessed online directly from the bank or credit union's website; a Federal Direct PLUS Loan must be accessed through the loan's servicer.

When a family turns to you for advice, consider private student loans as a viable alternative to Federal Direct PLUS Loans. Depending on parents' unique needs, credit, and timeframe, private student loans can be a valuable resource for paying for college.

Encouraging Responsible Borrowing

Sallie Mae has helped more than 30 million Americans pay for college since 1972. We encourage students and families to supplement their savings by exploring grants, scholarships, federal and state student loans, and to consider the anticipated monthly payments on their total student loan debt and their expected future earnings before considering any loan.

1 Based on 2012/2013 Sallie Mae customer research studies.

2 This information was gathered on January 9, 2014, from . Students and families should explore federal loans and compare to ensure they understand the terms and features. Private student loans that have variable rates can go up after consummation. Federal student loans are required by law to provide a range of flexible repayment options, including, but not limited to, Graduated Repayment and Extended Repayment plans, and loan forgiveness and deferment benefits, which other student loans are not required to provide. Federal loans generally have origination fees, but are available to students regardless of income.

3 Interest rates, fees, terms, and borrower benefits based on a January 23, 2014 review of national school-certified private loan programs.

? 2014 Sallie Mae, Inc. All rights reserved. The Sallie Mae logo and Sallie Mae are registered service marks of Sallie Mae, Inc. SLM Corporation and its subsidiaries, are not sponsored by or agencies of the United States of America. SMSCH MKT8674 0214

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