The closer your young student gets to their high school graduation, the larger college and career choices seem to feel. For many juniors, preliminary tours and application preparations are already in progress. For seniors, it’s crunch time for applications and decision-making.
Parents, where do you fit into the picture?
Among the major ways that parents support their high school graduates, financing their higher education remains a substantial choice. According to a 2023 Sallie Mae study, 85% of U.S. parents underwrite at least a portion of tuition costs for their child, with over half of those costs covered by parent income and/or savings alone. In fact, parents are contributing over 15% more toward higher education tuition today than ten years ago.
So, let’s review how other parents are approaching tuition costs and how you can prepare your family’s finances for the choices that lie ahead, because there’s no time to waste!
Crunching the Numbers
There are more and more incentives for your high school graduate to stay in Tennessee while earning their degree. In fact, this fall the University of Tennessee (UT) System announced guaranteed admission to any campus for seniors with a 4.0 grade point average or sitting in the top 10% of their class. In addition, high-performing students at a number of Knoxville high schools are eligible for significant scholarships to attend a UT school.
Admissions and scholarships aside, however, the cost to attend one of the 160+ post-secondary institutions in Tennessee–including universities, community colleges, and vocational schools–varies greatly. According to the College Board, the average tuition and fees for in-state students at public four-year institutions in Tennessee for the 2021-2022 academic year is $10,770. For out-of-state students, the average jumps to $28,120. For private four-year institutions in Tennessee, the average tuition and fees for the 2021-2022 academic year is $33,660.
Based on current projections, the average cost of tuition in Tennessee for 2024 is expected to be around $14,000 for in-state students and over $35,000 for out-of-state students. This means that the average cost of tuition is expected to increase by at least 20% in the next four years.
Managing a portion or all of this cost over the span of four years or more can be a challenge for any family. Not to mention the number of kids you may have enrolled in higher education at one time!
Be Prepared
In the same Sallie Mae survey, of all parents who had a plan for paying for their child’s tuition, 55% were confident that their funds would not run out before their child completed their degree.
While there are factors that may be beyond a family’s control, planning can help ensure other potential obstacles – changes in school tuition, loan rate fluctuations, or upsets in scholarship funding – can more easily be overcome. That confidence pays dividends in your student’s wellbeing, as studies show that financial strain is a significant cause of dropout. In other words, having a plan in place to prepare for and pay tuition costs helps everyone sleep better at night.
If the common college savings strategies like 529 plans or Roth IRAs don’t seem sufficient, here is another option to consider.
Private Parent Student Loans
Private parent student loans are loans that parents or legal guardians can take out to help their child cover the expenses of higher education. These loans are offered by private lenders, such as banks, credit unions, and online lenders, and are not backed by the government. They are intended to bridge the gap between the student’s financial aid and the total cost of attendance.
Unlike federal student loans, private parent student loans require a credit check and often a co-signer. The interest rates and repayment terms are also set by the lender, rather than the government. This means that they may be higher and less flexible than federal loans. However, they can be a useful option for families who have exhausted all other forms of financial aid and need additional funds to cover educational expenses.
The Benefits of Parent Student Loans
Private parent student loans offer several benefits over other forms of financing, such as federal student loans or personal loans. These include:
- Higher loan limits: Private parent student loans can cover up to 100% of the cost of attendance, including tuition, fees, and living expenses. This can be especially helpful for families with multiple children in college.
- Flexible repayment options: While federal student loans offer various repayment plans, private parent student loans often have more flexible options. Some lenders may allow you to make interest-only payments while your child is in school, or offer graduated repayment plans that start with lower payments and increase over time.
- No borrowing limits: Unlike federal student loans, which have annual and lifetime borrowing limits, private parent student loans do not have any borrowing limits. As long as you have a good credit history and can afford the payments, you can borrow as much as you need.
Considerations Before Taking Out a Parent Student Loan
While private parent student loans can be a useful tool for financing your child’s education, there are a few things you should consider before taking one out:
- Interest rates: Private parent student loans often have higher interest rates than federal student loans. Make sure to compare rates from different lenders and choose the one with the most favorable terms.
- Co-signer requirements: Many private lenders require a co-signer for parent loans, as they consider the parent’s credit history and income when determining eligibility. Make sure to have a conversation with your child about the responsibility of co-signing a loan.
- Repayment terms: Private parent student loans have varying repayment terms, so make sure to understand the details of your loan before signing. This includes the length of the repayment period, any grace periods, and any penalties for early repayment.
Final Notes
For every student making their way through college, there are a number of choices that have gone into funding their education. The good news? There’s no one right way to do it! Parents and families have a number of tools at their disposal when planning and paying for their child’s college degree.
Don’t hesitate to investigate your child’s financing options and consider how you want to support them through these decisions. With proper planning and research, you can help make their educational dreams a reality.
