Consumer education loans are personal loans not secured by collateral (material assets). The borrower’s interest rate and loan terms are determined by their creditworthiness. Applicants do not need to complete federal and school financial aid forms, and the loan is disbursed directly to the borrower.

Parents contemplating borrowing a consumer education loan to cover education costs should consider the following:

• Interest rate. Most carry a monthly variable interest rate.
• Fees. Vary, depending on lender; may range based on credit score.
• Credit eligibility. Required to pass a credit check. The interest rate assigned can vary depending on the borrower’s credit score.
• Tax considerations. Loan payments, including interest charges, are not tax deductible if loan is not certified for qualified higher education expenses.
• Borrowing amount. Varies. Some lenders may base borrowing limits on cost of attendance. Other lenders have fixed annual borrowing limits as high as $50,000, and lifetime maximum borrowing limits as high as $250,000.
• Borrowing for all your children. Lifetime borrowing maximum may not be enough to cover every child for all their years of college.
• Borrowing for school-related expenses. May finance expenses in excess of cost of attendance, such as a commuting vehicle, travel home, furniture, and appliances.
• Deferment and forbearance clauses. If economic difficulty arises, payment deferment or forbearance clauses may be provided, depending on your lender.
• Repayment. Repayment will start usually within 60 days of disbursement. Some lenders allow borrowers to postpone payment while the student is enrolled. However, interest will accrue and be capitalized on the principal, increasing the overall cost of the loan.
• Repayment options. Some lenders may provide borrowers the choice of standard, income-sensitive, graduated, or extended (depending on loan balance) repayment.
• Liquidity, emergencies, and other expenses. Personal investments and savings are available for other purposes and emergencies.

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