Retirement & Financial Planning Report

Parents of college students generally will be able to borrow from the federal government at a 7.9% fixed interest rate, starting this July. They also can borrow from private lenders. Although many parents will be better off with federal student loans, some might choose private loans. Reasons include:

Some parents prefer to have the student do the borrowing, and there are limits to the amounts that students can borrow in federal programs. Even if the parent co-signs a private loan to supplement a federal loan, the child may have primary responsibility for repayment.

* Parents who are creditworthy might get a better interest rate on a private student loan than the 7.9% rate on federal loans. Private loans typically have variable interest rates, anywhere from 4% to 12%.

* Parents may have a personal relationship with a local bank. They might get a good rate there on a private loan.

* Some parents won’t qualify for federal student loans because of poor credit history. Their only option might be a private student loan with a relatively high interest rate.