#college loans for parents
Graduates at the University of Pittsburgh commencement last weekend. THOMAS SLUSSER/THE TRIBUNE-DEMOCRAT/ASSOCIATED PRESS
Another private student lender is rolling out a loan for parents who want to help with their children’s college bills.
Social Finance, better known as SoFi, announced a new loan on Wednesday geared toward parents of undergraduate and graduate students. Parents sign up for the loan to cover some or all of a student’s college expenses, without leaving the student on the hook for those loan payments. Citizens Financial Group launched a similar loan earlier this month, joining Wells Fargo. which has been offering this financing option for several years.
A parent loan is different from most private student loans, which require the student to sign up for the loan and usually also need an adult co-signer, who is often the parent. Both borrowers are then responsible for payments and are at risk of ruining their credit scores and overall credit history if loan payments aren’t made.
Lenders are rolling out parent loans in part to compete against the federal Parent Plus loan, which is used by many parents of undergraduate students. The Plus loans given out during the current 2014-15 academic year charge a 7.21% fixed interest rate in addition to around a 4.3% origination fee. Private lenders say they can offer a better deal by not charging an origination fee and offering lower interest rates to borrowers with strong credit.
SoFi’s parent loan is the latest move by the San Francisco-based lender to expand its presence in the student-loan marketplace. The firm, which launched in 2011, has quickly grown into a large private student lender, in particular in the refinancing space, where it refinances both private and federal student loans into new private ones. SoFi says it originated $1.25 billion in student loan refis in 2014, up from $224 million a year earlier.
The company is also seeking to sell other loans to its borrowers. The firm began originating mortgages and personal loans last year.
On the parent loan, SoFi is offering fixed-rate and variable-rate options. Fixed interest rates range from 4.75% to 7.75% and variable rates currently offered range from 3.18% to 5.43%. Rates can be discounted by a quarter of a percentage point when borrowers set up automatic bill pay. The loan is available in every state except Nevada.
SoFi first launched the loan in June last year in a pilot program for parents of undergraduate and graduate students at Stanford University, where nearly 50 parents signed up, according to the firm.