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José Vélez / Money

Student borrowing has declined in recent years, which might seem like good, if surprising, news. Yet not all higher education debt is following that trend. Parent borrowing has quadrupled over 10 years, according to a 2017 report by the Consumer Financial Protection Bureau.

The fastest-growing segment of education borrowers, people over 60 are increasingly taking loans for children and grandchildren’s educations. Today, 3.6 million parents owe a collective $95 billion. The problem? The federal PLUS program generally lets parents borrow up to cost of attendance minus financial aid—regardless of income. That means you could end up borrowing far more than you can comfortably handle paying back.

Because parent borrowing lacks the same guardrails extended to undergraduates, it’s up to parents to determine how much they can actually afford. Here’s what to know so you don’t get in over your head.

Max out student borrowing first

Some parents believe it’s their job to finance their student’s college, says Luanne Lee, owner of Your College Planning Coach. But your student should still take out the federal student loans first—you can help pay them off later if you want. Federal loans come with low interest rates, deferred payments, and they’re in the student’s name, safeguarding your own credit record. All students qualify for them, and they also offer more flexible repayment terms than parent or private loans. But be sure to file the FAFSA so your student can access these loans. According to a 2019 report from Sallie Mae, 40% of families who didn’t file it believed their student wouldn’t qualify for aid.

Try to combine multiple sources of funding before borrowing

Many families believe they must pay for college only with loans or college savings, says Jodi Okun, founder of College Financial Aid Advisors. She recommends exploring multiple payment streams to limit over-borrowing. Start by adding up the money you spend on food, activities, and other expenses for your student and redirect that money to college bills. Do you have grandparents who plan to help? With some combination of cash flowing from current income, student earnings, help from relatives, savings, and a student loan, you might be able to pay the bill without a parent loan.

Use the tuition installment plan

Many colleges offer a zero-interest payment plan to help families spread costs out over the year, sometimes in 8 to 12 installments. Experts say most families don’t know this tool exists, and it can be a game-changer, allowing you to budget over the year and minimize borrowing. Installments often begin during the summer—find out what your student’s college offers. You’ll need to pay a modest fee to sign up—sometimes as low as $35 per semester but possibly $100 or more.

Research loan options and calculate projected payments

Borrowing for college isn’t a terrible move, but it’s important to determine what you can handle. Learn the loan landscape, both the federal Parent PLUS and private parent and student loans, says Debbie Schwartz, founder of Road2College and a former financial services executive. Compare interest rates, fees and repayment options. Parent PLUS loans, for example, come with a hefty 4% origination fee, but they also carry federal protections private loans don’t. Borrow only what you need to pay the college’s bills and no more, Okun suggests.

If you take a PLUS loan or co-sign a private student loan with the expectation that your student will pay it back, ask yourself: can your student handle debt above the federal student loan limit? (It’s an aggregate limit of $31,000 over five years for dependent students.) Co-signing a private loan makes you liable for payments if your student fails to keep up.

If you plan to pay off the loan yourself, you’ll need to analyze whether you can handle the payment. Lee says families should consider loan scenarios for multiple years and children, whether taking the PLUS loan or a private loan. “Each year you borrow private loans, your debt ratio changes, and so the terms of the next year’s loan will change,” she says. Borrowing too much for the first child can shut down your ability to borrow for their junior or senior year or for a younger child. Families land in that trap all the time.

Use a tool like College Board’s loan calculator or the Department of Education loan simulator to run projections. Lee recommends plugging in all 4 years of loans with the capitalized interest to find your true monthly payment over the standard 10-year repayment schedule. Can you make the payment, in addition to your other financial obligations, for the next 10 years? “When they see those 4-year numbers, most parents get that horrible sinking feeling in the pit of their stomach,” Lee says. Also remember that Federal PLUS and private loan payments begin immediately upon disbursal, Okun says. It’s possible to defer PLUS loans, but interest will accrue.

Go back to the drawing board if necessary

If you have no college savings, your retirement fund is limited, and you have to borrow the cost of college, reconsider the college choice, college planners say. Parents have to think about their fiscal responsibility to their household first. “Parents don’t like to say no,” Lee says, “but sometimes it’s the only way.”