What Are Parent Plus Student Loans?
The federal government provides various loan options for students looking to fund their college education without seeking out private lenders as an alternative. Private lenders are very expensive, and their primary aim is to make money of education as a commodity. Various federal loans, therefore, exist to assist students in completing their college education.
- Stafford Loans
- Perkins Loans
- Plus Loans
Each has its own unique qualities that makes it attractive to students and their cosigners. For this session, we talk about Plus loans. What are Plus loans?
Parent Plus loans are federal loans made available to parents of undergraduate students, offering a fixed 7% interest rate and flexible loan limits. The interest rate is generally higher than Direct Loans, otherwise known as Stafford loans, which levy a 4.45% interest rate and which are basically geared towards students who have a demonstrated financial need. With a Plus loan, a student can borrow individually, with a cosigner or a parent can borrow on behalf of their child.
Plus loans for parents are a great way for parents to assist their children with their education if they have exhausted all other means of federal financing. These loans are only available to parents of dependent undergraduate students. There is no minimum credit score for parent Plus loans although an adverse credit score will affect your eligibility.
The following is important parent Plus loans information to consider before applying for these loans:
- The loan proceeds must be explicitly used for educational purposes only
- Both students and parent shouldn’t be in default on any student loans.
- Students and parents should be US citizens, eligible non-citizens or permanent residents.
- Students should be enrolled in studying at least half-time.
It is important to remember that parent plus loans are not need-based, so persons from any income bracket can apply for the loan. Eligibility also doesn’t depend on debt to income ratios or credit scores, although the borrower should not have an adverse credit history.
If the parent has an adverse credit history for these or other reasons, (s)he can borrow with a cosigner who doesn’t have an adverse credit history.
Folks taking direct Plus loans for parents can borrow up the cost of attendance minus any other financial aid received, which means there really isn’t a cap on how much one can borrow. To receive a Direct Plus loan, the student or the parent must fill out a FAFSA form, and one is required to sign a Master Promissory Note (MPN), which spells out the terms of the loans.
The Best Ways to Consolidate Parent Plus Loans
If direct Plus student loans are not accessible to a dependent student’s parents, the student can apply for direct, unsubsidized loans available to independent students. If either parent later qualifies for the Direct Plus loan, the student’s status will return to dependent status. The current fee for Parent Plus loans is 4.264%, and these are deducted when the funds are disbursed.
The standard repayment term for these loans is 10 years, although parents can apply for an extension of that term if their loan exceeds 30,000 dollars or if they are reconsolidating several loans. Which brings us to the issue of consolidating parent Plus loans.
The first thing that may come to mind when parents hit a dead-end with multiple loan repayments for their children’s education is to transfer those loans to their children. It doesn’t quite work like that. A parent cannot transfer their PLUS loan to their children, even after graduation. Can parent Plus loans be consolidated, either singly or with the dependent’s loans? A parent can also not consolidate their loans with their child’s loan and make single payments. However, if you are a parent with multiple loans out for your child’s education, you can consolidate those loans into one. You have the ability to change your loan from direct plus to a consolidated loan by changing your payment plan to 20% of your discretionary income for as many as 20 years, something known as income-contingency repayment.
Consolidation helps parents who are struggling to make multiple loan payments and are even falling behind on those payments. Falling behind for 90 days may land you in default, and doing so for a consecutive 270 days may lead to garnishment of your tax refunds.
Possible Parent Plus Loans Repayment Options
As a parent, it’s important to take a long, hard look at your loan repayments if they are causing an undue burden on yourself. It isn’t reasonable to make 30,000 dollar annual repayments on a 50,000 dollar annual income. If you need help paying parent Plus loans and don’t know where to start, here’s a good place to start. First, remember that you should never borrow what you can’t pay back in 10 years or by the time you retire, whichever precedes the other.
If the payments have become an undue burden, you can apply for parent Plus loans forgiveness. This is limited to parents employed in specified government jobs and in non-profit and needs you to have made at least 120 on-time payments for your debt to be forgiven. Another option is private refinancing, which may lower your interest rates but ultimately leave you without the protection of federal protection.
Can parent Plus loans be deferred? Deferment is an option if you feel you won’t be able to make your payments on time and budget, provided the student is enrolled on at least half-time basis and with a 6-month grace period after the student graduates. However, interest accrual continues during these period.
So, ‘are parent Plus loans good? If you plan yourself well and don’t over-borrow, it can be a good way to subsidize your child’s education. Explore other finance options too.