NEW YORK (CNNMoney.com) -- Attention parents. Now there's a new way you can pay for your kids' college education. Private student loans designed just for you. This is the latest offering from Wells Fargo.
With this loan you have the option of making interest-only payments for up to two years while your child is in school. Once your kid graduates, you can take up to 15 years to repay this loan. There are no fees involved and interest rates are variable, ranging from 4.25% to 10.74 % depending on your credit.
And it's not only parents that can take advantage of this loan option. The Wells Fargo loan allows others other borrowers -- like the student's uncle, a guardian, or grandparents.
This new product comes after President Obama signed a law that would cut out private banks from offering federal loans to students. By switching to a direct lending model, banks and financial institutions are estimated to lose almost $2 billion a year in profit, says Mark Kantrowitz of Finaid.org. To fill that profit gap, we will probably see more of these kinds of products, he says.
At first glance, it may seem as if the private student loan is a good deal. After all, if you have stellar credit, the interest rate is very low on the Wells Fargo loan and you have a longer time to pay it back. That means lower monthly payments.
However, the longer the repayment period, the more interest you'll pay over the life of the loan. And don't forget that with variable rate loans, you are vulnerable to increases in interest rates. And it's almost inevitable that interest rates will start increasing in a few years.
But parents take note. There's another option out there for you: federal PLUS loans. These are loans designed specifically for parents of undergraduate students. The interest rate is 7.9% fixed with a 4 % fee. And the repayment period is 10 years.
If you run into financial trouble, there's a lot more flexibility with PLUS loans. Say, for example, you lost your job and can't make payments, you may be able to get on an alternate repayment plan, or you can get a deferment or forbearance on your loan.
As a rule, families should borrow federal first. "Federal loans are cheaper, more available, have better repayment terms and have fixed interest rates," says Kantrowitz.
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