Now is the Time to Secure College Financing for Fall 2025 

Fall is right around the corner. If you or someone you know is sending a student to college, it is time to start planning to pay for the upcoming tuition bill. Most colleges and universities started sending the bills in July via their school portal directly to students. Gone are the days when families receive a paper statement in the mail. Parents should inform their student to be on the lookout for school communications regarding any charges and billing statements. Unless other arrangements have been made, the amount due for the fall term is expected to be paid in full by the first day of class. 

College students may need secure financing to cover direct and indirect costs as scholarships, grants, and savings are often not enough. The first go-to financing option is the Federal Direct Student Loan. This loan is available to students who have completed the Free Application for Federal Student Aid (FAFSA) for the academic year 2025-2026. This entitlement loan program offers annual borrowing limits based strictly on grade level. Freshman students may borrow up to $5,500; sophomores may borrow $6,500 while juniors and seniors may borrow $7,500. Students will need to complete additional steps to secure this funding. First, they should “accept” the loan via the financial aid section in their college portal. Then students should login to www.studentaid.gov and complete the Master Promissory Note (MPN) and required Entrance Counseling.  

Since the Federal Direct Student Loan Program has annual borrowing limits, families often need additional financing options. There are two types of education loans that parents may consider, including the federal Parent Loan for Undergraduate Students (PLUS) or private education loans.

Here are some key things to know about the federal Parent PLUS Loan: 

Parents will apply via www.studentaid.gov and a credit check will occur. A parent may apply for this loan up to 180 days prior to the term start date. Credit standards are less stringent than standard lender requirements. This loan may be a good option for parents with a 720 or lower credit score or who have missed or late payment history.  

Parent PLUS loan underwriting does not look at a parent’s debt-to-income ratio (DTI) when determining credit approval. DTI ratios are calculated by taking total current monthly payments divided by monthly gross income. Parents who have a DTI ratio above 36% may opt for the PLUS loan.  

College is a multi-year expense and parents often need to borrow funds for each year. This may increase their debt-to-income ratio annually. 

PLUS Loans are a parent-owned liability until the loan is paid in full. The only way to have the loan transferred to the college student is for the debt to be refinanced by a private education entity.

Another option for college financing includes private higher education loans.

Here is what you need to know about these loans:

There are two borrowing options, including the college student along with a creditworthy cosigner or just the parent. If the expectation is for the student dependent to have college loans in their name, this is your only option outside of the Federal Direct Student Loan. 

Most private loan lenders are not your typical brick and mortar financial institutions. You can research private loan lenders via www.nerdwallet.com or on college’s financial aid portal information.

Lenders determine credit approval along with the interest rate at the time of credit application. Private cosigned student loans may offer a lower interest rate than private parent loans. There is less lender risk with two people legally obligated to repay the debt on private student loans that are cosigned.

Credit underwriting is stricter compared to the federal PLUS loan. Lenders evaluate applicant credit scores along with a debt-to-income ratio. Most college students have no or very limited credit history, which is why lenders require a creditworthy cosigner. 

Do not apply too early for a private education loan. Lenders will pull credit at the time of application, and typically, the credit pull expires in 60 days. As tuition bills are often due at the end of August, families should not apply for a private loan until late June or early July.  

Applicants may shop around for private loan options by using Credible.com. This private loan platform completes a soft credit inquiry, which does not negatively affect your credit score. This platform provides families the ability to compare private lender interest rates with the federal parent PLUS loan.  

Finally, many states such as Texas, Minnesota and Massachusetts, offer state private education loan options. State loan options are available to students who reside in that state or are attending a college in that state.  

Regardless of which education loan option is chosen, borrow only what is needed for each academic year. Consider paying the interest while the student is enrolled in college to lower overall borrowing cost. Most loan options allow deferments of principal and interest payments while the student is enrolled in college; however, this may lead to significantly higher monthly payment amounts. Families should estimate monthly payments annually to project the total financial liability in the future. In short, students and parents should borrow wisely and plan for each future student loan payment. 

Michelle M. Smoley is an Accredited Financial Counselor® and Director, College & Personal Finance at Bright Horizons College Coach. Visit Michelle’s FindAnAFC profile to learn more about her services and connect with her on LinkedIn.