Dear Dr. Don,
My daughter is starting graduate school in the fall. She had scholarships and a prepaid tuition program for her undergraduate degree. Now she is going to have to take out student loans for graduate school.
She filled out her Free Application for Federal Student Aid, or FAFSA, and will be getting a federal Stafford loan, but it is not enough to cover the expense. For the rest, which is better: one of the federal government’s PLUS loans for graduate and professional degree students, or a private loan?
— Shonda Scholar
The financing strategy is to exhaust the loans available under the federal programs before looking to private student loans. The federal programs have a measure of flexibility that the private loans just don’t have in terms of loan deferments, loan forbearance and loan consolidation. She can get Stafford and PLUS graduate loans in her name without you co-signing the loans.
Work with your daughter to put together a financial plan to cover her graduate school expenses. Be explicit about what you’re willing to contribute, and make clear to her what she’s expected to contribute as well.
Don’t co-sign a student loan for her if you’re not willing to accept the risk that you may be making some (or all) of the loan payments. She’s making an investment in her human capital. Ideally, it will pay off in the form of a rewarding career for her. Make sure she has some skin in the game by having her Stafford and PLUS student loans solely in her name. If you decide to take out parent PLUS loans to help with the cost of her education, make sure she understands that you’re sacrificing some part of your future to fund hers.
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